Turtle Trading

[driller]

I just finished The Complete TurtleTrader by Michael Covel. I know a little about the stock market, but nothing about technical trading.

After reading the book, I found that this is a very well known thing; it's all over the internet.

But now some questions:

The original turtles were supposed to follow very strict rules. As a group the turtles averaged about 80% ROI over a 5 year period. Then the program was terminated. The money the turtles made was a serious amount of money: They were given up to a million to trade with.

Why didn't Dennis and Eckhardt just program computers to make the trades?

In the book, Covel describes what happens to the various turtles after the program ends. He says that the one's that were successful were the one's that in addition to being good traders were good businessmen, etc.

If the rules enable you to make 80%/year, why do you need to do anything else besides trade?

80% is way more that Buffet ever made. Has he just been wasting his time on all that fundamental stuff?

[Tater10]

[ QUOTE ]
As a group the turtles averaged about 80% ROI over a 5 year period

[/ QUOTE ]

The risks taken were huge too.

[ QUOTE ]
Why didn't Dennis and Eckhardt just program computers to make the trades?

[/ QUOTE ]

The enter/exit orders of size needed more 'finesse' than just "buy 153 contracts at 467.25 stop".

[ QUOTE ]
If the rules enable you to make 80%/year, why do you need to do anything else besides trade?

[/ QUOTE ]

Again, the risks taken were huge. Downswings were easily 50%+. When these guys went on to manage professional money, you can see that they shoot for the 'normal' 25% returns with similar drawdowns.

There's nothing magical about trend following. Take the (calculated) risks and you get rewarded. Take risks in stocks long term, and you are rewarded. It just so happens that the risks in stocks are almost always with the buyer.

Read "way of the turtle" - he spells out the exact rules they used.

[driller]

Thanks for the reply. Covel's book seemed to indicate that the turtles were required to follow the rules exactly, but I knew there had to be more to it.

By the way, he is not very complimentary of Curtis Faith, author of the book you mentioned. Of course they are competitors.

[kimchi]

[ QUOTE ]
Why didn't Dennis and Eckhardt just program computers to make the trades?


[/ QUOTE ]

I think they did, but once a lot of people are using the same computer trading, the system deteriorates. Using longer-term look-back period (eg more than 55 days) and a shorter period for shorts probably still works.

Many traders actually profited by fading the popularity of the Turtle's method by selling breakouts instead of buying them. This was aptly called Turtle Soup Strategy

[ QUOTE ]
80% is way more that Buffet ever made. Has he just been wasting his time on all that fundamental stuff?

[/ QUOTE ]

Not with his results. Automated trading systems tend to degenerate over time. Buffet's system has worked (and will work) for decades. You wouldn't want a surgeon or taxi driver to work on a completely computer controlled system without any discretionary imput.

I don't like Michael Covel or his books. He's a classic example of the old addage "Those who can, do. Those who can't, teach" I'm sure he plugs his grossly overpriced 'course' several times in his book and his website. Covel writes in a self-important journalistic way, and his other popular book provides no helpful information. In fact, the most useful information in the book is contained on this front cover.

Curtis Faith's book is more useful . I'm not surprised Covel and Faith don't get along. Covel was charging stupid amounts for information Curtis faith published for free (and later in his book) and other trade & psychological management strategies available in popular trading books.

As for the Turtles, there's an interesting interview with Dennis and Eckhartd in one of Jack Schwager's Market Wizard books. They are both well worth reading if you haven't already (but avoid Stock Market Wizards).

The Turtles really did 'swing for the fence' and had gut wrenching drawdowns together with wild upswings. I think their method of pyramiding into the trades was what created the huge wins and drawdowns. After the 80s, I believe some of them (who carried on) had 90% drawdowns, and even Dennis himself scraped the barrel a few times.

I've tested their system using stock indexes (which don't trend as well as the currencies & commodities the Turtles predominantly used - although they did trade S&P500 futures). I had mixed results, but unless you can soldier on after 10 losses in a row and wait for the "big move", then I think there are less ulcer-inducing ways to trade. The big moves do come, but is the trader going to have the stomach to wait for them?

[eastbay]

[ QUOTE ]

If the rules enable you to make 80%/year, why do you need to do anything else besides trade?

[/ QUOTE ]

They don't, anymore. Those kind of salad days are over. Back then even simplistic computer analysis was cutting edge. Now it is totally vanilla, and there are way too many traders picking at the last few scraps of that carcass.

Jim Simons appears to be proof that something model driven still works for market crushing returns, but nobody on the outside knows how he does it. In another 20 years, after those systems have dried up, there will probably be books about how they did it, like there are books about the turtles now.

eastbay