Saturday, December 5, 2009

The Turtle Trading System No.1 - Completing a Long Term Profitable Strategy

After a lot of time since I wrote my first post on the turtle trading system (by Richard Denis) today I intend to write a second post aimed at showing you the results I have obtained from the Turtle Trading System No.1 strategy. For those of you who are not familiar with the turtle trading system, this was a system developed more than 25 years ago by a trader named Richard Denis which was aimed at making anyone profitable in trading using a very rigid set of trading rules that were supposed to be executed to perfection by the trader.

Many people have asked me why I did not code the Turtle System No.1 when I coded the Turtle Trading System No.2. From a programming point of view, the turtle trading system No.1 is more complex than the second trading system in that the second trading system operates on much simpler rules which only include a entry breakout and an exit breakout which do not change upon any loses or profits obtained by the system. On the contrary, the No.1 system uses a 20 day breakout as an entry with a 10 day breakout as an exit with the 20 day breakout rules being changed to a 55 breakout rule if the system takes one profitable trade, then reversing the rules to the original 20 day breakout after any 55 breakout trade is taken.

However, in order to see the full performance of the turtle trading system I decided to code the Turtle Trading System No.1 and see if it performed better, worse or the same as the No.2 system on several currency pairs. After a few hours of coding the system and making it work as it should I finally managed to get a decent implementation of the No.1 system. The system trades exactly as it was explained by Richard Dennis changing the entry criteria depending on the profitability of the previous position taken.
The results, as you can see from the graph above, are much better than the results obtained for the Turtle Trading System No.2. The faster exit criteria and the change to a longer term entry when a profitable result has been achieved make the system better adapt to market conditions in the EUR/USD for the past 10 years. The backtest was done from Jun 2000 to Jun 2009 and it shows that the No.1 system is able to produce a 25% annual profit with a maximum draw down smaller than 20%.

However it is worth noting that the problems that exist with the turtle trading system No.2 still exist for this system when trading any other currency pair. On the other cases results are a little bit better but globally the same as the turtle trading system No.2. I have submitted an article to currency trader magazine for publication on this month's issue (December 2009) that features the results of the turtle trading system amongst 7 different currency pairs including several moderate optimizations I have done that were able to achieve very significant levels of profit with a reduced level of draw down from 2000 to 2009. Such was the improvement that the turtle trading system becomes competitive against the god's gift ATR in term of average yearly profitability on some currency pairs.

I am proud of this system's coding but a lot still needs to be done in order to achieve the full potential of the turtle trading system. Please stay tuned for tomorrows article which will be about what is still left to be done about the turtle trading system in order to achieve an exact replica of the full trading technique that Denis' turtles used. If you would like to learn about automated trading strategies and how you too can trade or develop long term profitable systems 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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