During the last 50 years of trading, no trading system has ever brought so much commotion and excitement than the turtle trading system developed by Russell Sands (it is useful if you read this document which explains the system first before venturing into it's analysis for mt4). This legendary trading method turned ordinary people into extraordinarily profitable traders, showing everyone that the average Joe was as capable of being successful in trading as any finance major.
The turtles success, as they were called for following up this system, was primarily based on their ability to follow some simple rules that were geared towards bringing in profits if followed to the letter. The system focuses on catching long term trends and gets its profits from 2 or 3 positions each year. This system works but is very difficult to follow for the regular forex retail trader, mainly because it involves long periods of sustained draw downs in order to achieve periods of positive results. The system continually puts the trader's physiology to the test because sustained draw downs often cause traders to quit before seeing any real results. Russel in fact said, and was probably write in saying that he could have published the system in the newspaper and nobody would have followed it.
The first and one of the most important things about this trading system is adjusting positions sizing. I will now show you how it applies to retail forex traders using mt4. The rules change a little bit because metatrader brokers allow us to fraction lot sizes, something which could not be done by the turtles. Additionally, retail forex traders usually have high levels of leverage, something that should also be taken into account when dealing with this system.
The system uses a unit (defined as N) to calculate position sizing according to market volatility, this should be calculated once a week. So, in order to calculate this in metatrader 4, open up a daily chart with the currency pair you wish to trade (we will use EUR/USD), attach the ATR (average true range) indicator and record the ATR value at the beginning of the week. After this, the equation to obtain your lot size would be N=(0.01*(account size))/((contract size)*(ATR)). The result of this equation should then be rounded to the closest second digit, so, if the result is 0.1215 then it would translate to 0.12 , which can be traded in any mt4 broker that allows lot fractioning.
For example, trading a 1000 USD account with a 100,000 contract size, and an ATR of 0.0155 you would arrive at a unit size of 0.0064 lots. As you can see, this is undercapitalized for most mt4 brokers so we should expect to have at least 5000 USD for 100,000 USD contract sizes and at least 500 USD for 10,000 USD contract sizes. Now, this value of unit size is dramaticaly important as every aspect of money managment is based upon this measurement.
In the case of the 500 USD, 10,000 contract size account, we would trade 0.03 units which would trade at 3 cents per pip , which would allow for a 331 pip movement per unit against you before 2% of capital was lost. This is adequate as it allows enough market movement in open positions. My next article about the turtle system will focus on setting up your mt4 trading platform to trade the turtles as well as what the entry and exit rules are, I will also explain how to use the metatrader expert advisor (automated trading system) to trade the turtle system . Now you can see why this trading system is called the "turtle trading system" you will require a 335 pip gain in order to gain 2% of your account using one unit. Sure, it is a slow, but certain road to wealth.
Now if you are interested in other free automated trading systems which have been traded and reviewd by me please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
The turtles success, as they were called for following up this system, was primarily based on their ability to follow some simple rules that were geared towards bringing in profits if followed to the letter. The system focuses on catching long term trends and gets its profits from 2 or 3 positions each year. This system works but is very difficult to follow for the regular forex retail trader, mainly because it involves long periods of sustained draw downs in order to achieve periods of positive results. The system continually puts the trader's physiology to the test because sustained draw downs often cause traders to quit before seeing any real results. Russel in fact said, and was probably write in saying that he could have published the system in the newspaper and nobody would have followed it.
The first and one of the most important things about this trading system is adjusting positions sizing. I will now show you how it applies to retail forex traders using mt4. The rules change a little bit because metatrader brokers allow us to fraction lot sizes, something which could not be done by the turtles. Additionally, retail forex traders usually have high levels of leverage, something that should also be taken into account when dealing with this system.
The system uses a unit (defined as N) to calculate position sizing according to market volatility, this should be calculated once a week. So, in order to calculate this in metatrader 4, open up a daily chart with the currency pair you wish to trade (we will use EUR/USD), attach the ATR (average true range) indicator and record the ATR value at the beginning of the week. After this, the equation to obtain your lot size would be N=(0.01*(account size))/((contract size)*(ATR)). The result of this equation should then be rounded to the closest second digit, so, if the result is 0.1215 then it would translate to 0.12 , which can be traded in any mt4 broker that allows lot fractioning.
For example, trading a 1000 USD account with a 100,000 contract size, and an ATR of 0.0155 you would arrive at a unit size of 0.0064 lots. As you can see, this is undercapitalized for most mt4 brokers so we should expect to have at least 5000 USD for 100,000 USD contract sizes and at least 500 USD for 10,000 USD contract sizes. Now, this value of unit size is dramaticaly important as every aspect of money managment is based upon this measurement.
In the case of the 500 USD, 10,000 contract size account, we would trade 0.03 units which would trade at 3 cents per pip , which would allow for a 331 pip movement per unit against you before 2% of capital was lost. This is adequate as it allows enough market movement in open positions. My next article about the turtle system will focus on setting up your mt4 trading platform to trade the turtles as well as what the entry and exit rules are, I will also explain how to use the metatrader expert advisor (automated trading system) to trade the turtle system . Now you can see why this trading system is called the "turtle trading system" you will require a 335 pip gain in order to gain 2% of your account using one unit. Sure, it is a slow, but certain road to wealth.
Now if you are interested in other free automated trading systems which have been traded and reviewd by me please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
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1 comment:
Hi, Dumb question, but if you are trading a currency pair not involving the USD (such as the EUR/GBP) is the lot size still 10,000 (or 100,000)? Thanks
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