By Taro Hideyoshi
The next piece, following markets and position sizing, of turtle trading system is entries.
Most traders believe that entry is the most important aspect in any trading system. For the turtles, they used only a very simple entry system based on channel breakout systems taught by Richard Donchian.
The turtles’ rules for entry consist of two different but related breakout systems called System1 and System2.
System1 was a shorter-term system based on a 20-days breakout. The turtles entered positions when price exceed high or low of the preceding 20-days. The entry signal would be ignored if the latest breakout would have resulted in a winning trade. And this breakout would be considered a losing breakout if the price moved 2N (N was calculated according to position sizing rule) against the position before a profitable 10-days exit occurred.
However if the System1 breakout was ignored due to the winning trade, the System2 would be used for entry to avoid missing of major moves.
System2 was a longer-term system based on a 55-days breakout. The turtles entered positions when the price exceeded by a single tick the high or low of 55-days. All breakouts for System2 would always be taken whether the previous breakout had been a winner or lost.
After turtles entered a single unit positions at the breakout, they would add to positions every 0.5N intervals following their initial entry until the maximum permitted number of units was reached.
Example
Suppose a turtle was trading Gold. The N was calculated as 2.50.
The price broke the 55-days high at 310.
Hence, turtle added first unit at 310.00.
Therefore the second would be added at 310 + (0.5*2.50) = 311.25.
The third unit added at 311.25 + (0.5*2.50) = 312.50 and so on.
The most of profits in a year might come from two or three large winning trades. Therefore the turtles have to be consistency because if a signal was skipped, this could affect the returns for the year.
Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.
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