What is Turtle Trading?

Turtle Trading is a trend-following trading strategy developed by Richard Dennis and William Eckhardt in the 1980s. It was based on the idea that anyone can be trained to trade successfully using a structured set of rules. The strategy focuses on breakout trading, meaning traders enter positions when prices break above or below key levels.

Turtle Trading became famous because it turned a group of novice traders (“Turtles”) into highly successful traders by following a strict, rule-based system.

How the Turtle Trading Strategy Works

The Turtle Trading System is based on trend-following principles and includes:

1. Identifying Breakouts – Entering trades when price breaks out of a predetermined range.
2. Risk Management – Controlling position sizes based on volatility.
3. Stop-Loss Rules – Exiting trades if the trend reverses.
4. Trailing Stops – Locking in profits by adjusting stop-loss levels.

Step-by-Step Turtle Trading Rules

1. Entry Strategy (Breakout Trading)

• Buy when the price breaks above the 20-day high (for long trades).
• Sell short when the price breaks below the 20-day low (for short trades).

2. Position Sizing (Risk Per Trade)

• Turtles used a fixed percentage of capital per trade, adjusting position size based on volatility (ATR – Average True Range).
• Risk per trade was limited to 2% of total capital.

3. Stop-Loss Rules

• A trade was exited if the price moved 2 ATR (volatility units) against the position.

4. Trailing Stop (Profit Protection)

• Traders used a 10-day low (for long positions) or 10-day high (for short positions) as a trailing stop to lock in profits.

5. Diversification

• Turtles traded multiple asset classes, including forex, commodities, and stocks, to reduce risk.

Why Turtle Trading Works

✅ Follows Market Trends – Profits from sustained price movements.
✅ Risk Management Focus – Limits losses and maximizes winners.
✅ Rule-Based System – Reduces emotional trading.
✅ Works in Different Markets – Can be applied to stocks, forex, commodities, and crypto.

Challenges of Turtle Trading

❌ Requires Patience – Trend-following strategies may have long losing streaks.
❌ Whipsaws in Sideways Markets – Frequent breakouts can lead to false signals.
❌ Discipline is Key – Deviating from the system reduces effectiveness.

Turtle Trading vs. Other Strategies

Feature	Turtle Trading	Scalping	Swing Trading
Holding Period	Weeks to months	Seconds to minutes	Days to weeks
Market Type	Trending markets	High liquidity markets	Both trending & ranging
Trade Frequency	Low	High	Medium
Risk Management	ATR-based position sizing	Tight stop-loss	Moderate stop-loss

FAQs

What is Turtle Trading?

Turtle Trading is a trend-following strategy that uses breakout entries, risk management, and trailing stops to capture market trends.

Does Turtle Trading still work?

Yes, but it works best in strongly trending markets, such as forex, commodities, and certain stocks.

What is the 20-day breakout rule in Turtle Trading?

A long trade is entered when the price breaks above the 20-day high, while a short trade is entered when it breaks below the 20-day low.

How do Turtles manage risk?

They risked only 2% of their capital per trade and adjusted position sizes based on market volatility (ATR).

What are the exit rules in Turtle Trading?

Trades were closed using a 10-day trailing stop or a 2 ATR stop-loss.

Can Turtle Trading be used in forex?

Yes, it is widely used in forex trading, as currency markets experience strong trends.

Do I need advanced trading skills to use Turtle Trading?

No, but strict discipline and patience are required to follow the rules.

What is the biggest risk in Turtle Trading?

False breakouts in sideways markets can lead to multiple small losses before a strong trend emerges.

What indicators are used in Turtle Trading?

The ATR (Average True Range), breakout levels, and moving averages help identify trends and manage risk.

Is Turtle Trading suitable for beginners?

Yes, but beginners must stick to the rules and risk management principles to succeed.