Revisiting the Turtle Trading System - A Portfolio Performance Analysis

If you have been following my blog for a while then you may be aware of the fact that I have been interested in the development and trading of the Turtle trading system - developed by Richard Denis in the eighties - using automated trading systems. Through the past few years I have made several important developments which began with the simple implementation of systems No.1 and No.2 and the final implementation of the Ayotl trading system which is my fully automated - portfolio enabled - version of the turtle trading system which includes all correlation and trade limiation rules used by the original turtles. Within this post I want to talk to you about my latest analysis of the turtle trading strategy which includes a 10 year performance review of a combined portfolio trading several instruments.

When you analyze the performance of the turtle trading system for the past 10 years (jan 2000 to Jan 2010) on separate instruments things do not appear to look that good for most pairs. The EUR/USD is the only one that gives outstanding results while other pairs seem to struggle to make any profit or even to break even. However I have always been interested in the portfolio character of the turtle trading strategy and analyzing mixed performance along a basket of instruments becomes important to truly know how well positions taken on different pairs at different times affect the depth and extent of draw down cycles.

In what has appeared to be a portfolio centered week (certainly reading the past few posts you will know what I mean !) I decided that it would be great to show you some of the performance characteristics of a combined simulation of the turtle trading system No.2 on the EUR/USD, USD/CHF, GBP/USD, AUD/USD, NZD/USD and USD/JPY. I did not include any correlation or trade limiting rules and all instruments were traded with separate balances with each loss or profit made by an instance affecting exclusively its own position sizing. Using some scripts provided by Asirikuy members (thanks again for all your contributions by the way !) I was able to combine, reorganize and analyze all the backtests as if they were a single trading system. The results, which show us the potential of the Turtle Trading system, are shown below (small table shows largest draw down periods).
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The combination of all these different currency pairs generates a portfolio which was able to achieve in simulations an average 21% compounded average yearly profit with a maximum draw down level of 29%. As it is expected, draw down period lengths for this system are large with the biggest draw down period lasting about 4 years from2004 to 2008. However, the inclusion of different currency pairs meant that the trading system was able to preserve equity and avoid further dips under unfavorable market conditions characterized by a lack of well defined rapidly developing trends.

In the end I have to say that these results are encouraging and they point out that the inclusion of the additional portfolio rules may be able to improve profitability even further. Overall the turtle trading system seems to continue to be a reliable and robust trading system which - despite pronounced draw down periods - always seems to be able to come through to the other side regardless of ever-changing market conditions. The fact that trends always eventually develop - as a consequence of crowd behavior - seems to mark the long term success of this trading strategy.

If you would like to learn more about the turtle trading system and how you too can trade Ayotl or learn how to code your own long term profitable systems based on sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Ayotl... Almost Ready for Action ! :o)

As you may know, for the past year or so I have been developing my own personal implementations of the Turtle Trading System developed by Richard Denis in the 1980s. I first developed System No.2, then System No.1 and then I published an article on the December 2009 issue of currency trader magazine. The article featured 10 year simulation results of System No.2's performance over a curency basket of more than 5 trading forex instruments along with some modifications of the entry criteria which boost the systems overall profitability and reduce its draw down.

For those of you who don't know - or missed my last post on the turtle trading system - I have been working on a fully automated implementation of the whole turtle trading system for the metatrader 4 platform which will apply all the rules as they were traded by the original turtles. The new implementation is able to handle a full turtle trading portfolio with any combination of System No.1 and System No.2 instances applying all the correlation and total trade limit rules enforced by the original turtle trading system.

After more than two months of demo testing and development, today I can say that the Ayotl system is ready to be released, in fact, the system will be released this Sunday to all Asirikuy members. The system is far more complex than any other EA I have programmed since it features 3 different expert advisors each one with a very distinct job within the trading system.

The first two expert advisors represent systems No.1 and No.2. These experts are loaded on each one of the different currency pairs the trader wishes to use and they handle the particular trades of each one of the different instruments according to the system's rules. The third EA, which is the most important part of the system is the Ayotl controller which gives or denies trade permissions to the first two experts. The Ayotl controller calculates correlation between currency pairs, checks the total number of trades, the trades per currency and the trades per instance and then issues permissions according to the allowed trades taking into account all the turtle portfolio management rules. Below you can see a picture of the controller in action. As you see the controller displays a large amount of information which is very useful for the turtle trader.
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As I said on the previous Ayotl post, this is, to the best of my knowledge, the ONLY FULL implementation of the turtle trading system. Without a doubt we will start testing the system on Asirikuy on a basket of 3-6 different currency pairs on live trading and we'll see if in fact the portfolio management rules do decrease risk and increase profitability when compared with simply trading independent instances of the trading system. I think that in the long run the Ayotl trading system will become a vital part of Asirikuy as one of our main tools to reach long term profitability.

If you would like to learn more about what I have learned in automated trading and how you too can become long term profitable in the forex market using this approach please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Trading the Full Turtle System... The Ayotl Trading System

For the past year I have been very interested in the development of a trading system that matches all the exact specification of the original turtle trading system developed by Richard Denis in the 80s. I have separately programmed and evaluated both turtle trading systems (no.1 and no.2) in a reliable fashion leading to a publication on the 2010 January issue of currency trader magazine of my research done on the Turtle trading system No.2 and its performance on 7 different currency pairs during the past 10 years of trading. Near last year's end I published a post which stated that I was working on an implementation of the turtle trading system that would allow completely automated trading of both strategies including all correlation and portfolio management rules which formed part of the original turtle system.

As far as I know, there is no precise implementation of the separate trading systems available for mt4 besides my own and there is currently no implementatin of all the portfolio managment and correlation strategies which are supposed to further enhance the profitability of this trading system. Today's post aims to show you what I have been up to for the past few weeks regarding this trading system and what I have achieved... The Ayotl trading system.

As always, there is an etimological reason for the name. Since I want my developments to be able to be distinguished from other people's attempts to develop a turtle trading system expert advisor I decided to give mine the name Ayotl, which simply means turtle shell in Nahuatl, the original language used by the Aztecs in Mexico. A common word which also has its roots in Nahuatl is tomato, which comes from the word tomatl from the same language.

What is the Ayotl trading system exaclty ? It is not only a single expert advisor but a conjunction of three different expert advisors which are used together in order to trade the turtle trading system in a portfolio environment. There is an EA that trades system no.1, another EA that trades system no.2 and another EA which is called the "turtle controller" which simply controls what the other experts are doing and authorizes or denies permission to open new trades. The controller EA takes into account the number of total open trades per currency, total long open trades, total short open trades, total trades opened on heavily correlated instruments, total number of trades opened on uncorrelated instruments, etc. The controller has a myriad of functions and manages all the experts so that they work in unisone, just like an original turtle trader would have done.

Ayotl is the first true automated representation of the whole turtle trading system. The person who wants to use it picks up the instruments and simply decides whether to use system No.1 or No.2 on each one, loads the experts on each different chart, loads the controller on a separate chart (instrument does not matter) and defines the magic numbers used for each one of the separate instances. Then the system is initialized and the controller starts to handle requests and answers to each one of the interfaces. While it does that the EA checks if each request fulfills the necessary criteria to allow for the opening of new trades. The only shortcoming of this approach is that the Ayotl system cannot be backtested due to the fact that it uses several different currency pairs and the interactions between trades taken on different pairs but the separate systems can be tested individually on backtesting achieving the results shown on the Currency Trader Magazine article I mentioned at the beginning.

Without a doubt trading either system no.1 or no.2 yields profitable results in the long term . Manually looking at the probable modifications caused by the portfolio strategy only points out to a diminishment in risk because of the diversification and restrictions caused by correlations, total number of trades, etc. For the past two weeks I have tested the strategy on the 5 minute time frame (only to have fast breakouts and exits to test the programming, clearly the final system will be traded ONLY on daily charts like the original turtle trading system) and have found it to behave just exactly as it is supposed to. After a little bit more testing and the writing of a manual for the system it will be released for use to both ebook customers and newsletter subscribers. Watch my twiter feed on the bottom of the left handed sidebar (or subscribe to the feed) to get the news when the release is coming out.

If you would like to learn more about long term profitable trading systems and how you too can program design and use your own trading systems to achieve reliable profits in the forex market 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 Missing Piece of the Turtle Trading System, Trading Different Instruments...

As I said in yesterday's post, there is still a lot that needs to be done in order to have a truly complete implementation of the real turtle trading system. Up until now, I have managed to program Systems No.1 and No.2 accurately which make the main logic of the turtle trading system complete. The system can now be traded to its fullest on a single currency pair with any system you choose to trade. Remember that the creator of the Turtle Trading System stated that you could use any of the two systems, whichever you liked the most.

However there is still a big chunk of the puzzle missing, this chunk is portfolio management. Up until now I had decided not to make a lot of effort to program this since we cannot backtest trading of several currency pairs at the same time, however it seems logical to program this now that the initial parts of the system are ready.

So what is so important about portfolio management ? Well, the turtle traders had some very special rules about the way in which they were supposed to trade separate instruments in order to reduce the risk in which they traded their accounts. For example, they were only allowed to enter a number of positions on very correlated instruments while they could enter more positions if the instruments were loosely correlated. This is a sound strategy since correlated instruments will usually move together and therefore placing too many positions on closely correlated instruments would be like putting a lot of positions with the same "directional bias". However, placing more positions on breakouts of instruments that are loosely correlated may give an opportunity to diversify risk.

This adds another programming challenge since multiple currencies (in the case of the forex market) need to be monitored at the same time and currently placed trades need to be taken into account in order to allow or veto the opening of new position within the trading account. However by analyzing backtesting results I have seen that several losing positions may have been prevented in the GBP/USD, EUR/USD and USD/JPY simulations if they had been prevented from entering trades by a correlation criteria. This in fact may mean that risk can be reduced greatly by the implementation of the portfolio management strategies used by the turtles.

To implement all this portfolio management I will merge both experts for the No.1 and No.2 systems and create a third expert that is able to trade whichever system the person wants to trade plus calculate and decide whether or not to open positions based on the amount of currently opened positions and the degree of correlation amongst the instruments traded. After this it will be a matter of years before we know if the strategy does reduce risk and increases the profitability of the system but I am certainly going to include this as a part of my "retirement portfolio" as I have already done with the Turtle Trading System No.2 trading the EUR/USD. If you would like to learn more about profitable trading strategies and how you too can trade and develop your own long term profitable automated trading 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 !

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.
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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 !

My Turtle Trading EA - First Profitable Results !

After doing the first preliminary backtests and realizing that the system failed to generate profits from 2000 to 2009, I decided to take a good look at my programming and check the logic to see if I had any substantial errors that could be affecting the expert's trading. After examining the expert for about an hour I realized that I had a problem with the closing logic which was partially closing positions. The ea was closing with lot sizes equal to the atr calculated values, not the values the orders were orginally opened with, so order management was a little bit of a mess.

After correcting this and other less important issues I finally came up with an expert advisor that truly trades the turtle system 2 accurately. As I expected, results are now profitable for trading since 2000 to 2009. The expert is also profitable amongst several currency pairs, including the four majors.

Backtesting reveals that this system behaves exactly as I had supposed it did. We have periods of moderate but extensive loses and then we have very large, trend catching trades that consitute most of our profits. In fact, most of this profitable trades are many times larger than the average losing trade . Trying with different exit and breakout day parameters reveals that the turtles nailed it just right. This expert will not make anyone rich overnight, with the EUR/USD (first graph), you could expect to triple your capital once every 10 years while it would take you this much time to double your capital on the GBP/USD (second graph). If you want a system that has worked for the past 40 years and that can give you a long term, stable profit, then this is a system for you.
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As you can see on the backtesting images, this expert advisor is a slow, steady, sure money maker, based on the turtle system 2. This expert also backtests with a high consistency because it trades only on very large periods of time (sometimes trades remain opened for several months). You can get it by simply subscribing to my newsletter (corrected ea has already been uploaded to the ftp for subscribers), buying me a cup of coffee or buying my automated trading ebook.

If you would like to learn more about other free and commercial expert advisors 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 Turtle Trading System EA - Trading the Turtle System II

After searching a lot for an expert advisor that had the exact same rules of the turtle trading system, I found out that all of the free experts out there that try to trade the turtle system differ from the rules in one or another way. Since this system has the reputation of being profitable and very mechanical, I decided to give it a shot and program my own version of the Turtle trading system following the turtle rules to the letter.

Well, I programmed an expert advisor to follow the rules of what the turtles called the trading system number 2. My ea does exactly what the turtles say it is supposed to do. It enters trades on 50 day breakouts, places stops at 2N and then enters an additional of maximum 3 positions in 1/2 N intervals with the N equations defining lot sizes so that the amount of capital risked is also adjusted to volatility (as the system says). The system exits trades based on a 20 day breach as it is also described by the system.

Now, I would have expected this trading system to lose most of it's trades and then show tremendous recoveries on a few trades each year. That is exactly what I observed in backtesting with the small difference in that the big wins experienced during the trending periods were not enough as to compensate for the huge loses suffered from all the false breakouts experienced by the system. My ea newsletter subscribers will have access to this ea from today, so make sure you join my newsletter if you would like to test this ea yourself.

Right now I am trying to find additional criteria that can be added to the ea in order to prevent the ea from losing most of it's profits on false breakout trades. My best guess is that breakouts need to be further filtered out by the use of an additional indicator which reduces the number of false signals experienced by the system. Make sure you leave a comment if you have any ideas !

I found out that the lack of profitability I was observing was due to some programming glitches, make sure you read my latest post to see the first 10 year profitable backtests of this system !

If you would like to learn more about this ea and other free and commercial expert advisors 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 !

Trading the Turtle System in Forex using an ea in mt4 - Part Two - The Ea

In the first part of this post I gave a little introduction into the turtle's trading system and some insights into it's money management technique. From now on, I will start to talk about it's entry and exit strategies as well as it's pyramiding characteristics.

If you read the pdf (there is a link to it in the last post) that details the whole turtle trading system, you will notice that the system follows breakout strategies with a pyramiding approach in order to exploit the trend. This strategy ensures that the system gets a very high profit when a large trend is caught and also tries to minimize the risk associated with ranging markets. This is specially profitable in long time frames.

You should have also noticed that the Turtle technique has two different systems, No.1 and No.2. We are going to trade the system using the No.2 trading system with an 2N stoploss and an exit strategy based on the 20 day breakout signal. This of course, with the corresponding pyramidying tecnique with a maximum value of 3 units trading at any given time.
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The expert advisor we will be using can be found here (an image of the trading expert is shown above). It accurately represents the way in which the system works, following the exact entry and exit rules described in the manual for the No.2 trading system, make sure you set the LockingProfit option to false as this is an implementation not true to the original turtle system (remember to demo test to see if you feel confortable with this system before using real money). However, the lot size needs to be adjusted weekly following the instructions given during the first part of this article. I have also started testing this system in a demo account using the EUR/USD daily chart. People who have joined the mailing list will also receive statements and weekly comments on this system.

If you would like to learn more about other free and commercial expert advisors I have reviewed 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 !

Trading the Turtle System in Forex using an ea in mt4 - Part 1 - Money managment

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 !