Indicator PZ Turtle Trading MT5

Buy PZ Turtle Trading MT5 customer indicator in the store selling algo trading systems

The Tur­tle Trad­ing Indi­ca­tor imple­ments the orig­i­nal Den­nis Richards and Bill Eck­hart trad­ing sys­tem, com­mon­ly known as The Tur­tle Trad­er. This trend fol­low­ing sys­tem relies on break­outs of his­tor­i­cal highs and lows to take and close trades: it is the com­plete oppo­site to the “buy low and sell high” approach. The main rule is “Trade an N‑day break­out and take prof­its when an M‑day high or low is breached (N must me above M)”.  

An Intro­duc­tion

The Tur­tle Trad­er leg­end began with a bet between Amer­i­can mul­ti-mil­lion­aire com­modi­ties trad­er, Richard Den­nis and his busi­ness part­ner, William Eck­hardt. Den­nis believed that traders could be taught to be great; Eck­hardt dis­agreed assert­ing that genet­ics were the deter­min­ing fac­tor and that skilled traders were born with an innate sense of tim­ing and a gift for read­ing mar­ket trends. What tran­spired in 1983–1984 became one of the most famous exper­i­ments in trad­ing his­to­ry. Aver­ag­ing 80% per year, the pro­gram was a suc­cess, show­ing that any­one with a good set of rules and suf­fi­cient funds could be a suc­cess­ful.

In mid-1983, Richard Den­nis put an adver­tise­ment in the Wall Street Jour­nal stat­ing that he was seek­ing appli­cants to train in his pro­pri­etary trad­ing con­cepts and that expe­ri­ence was unnec­es­sary. In all he took on around 21 men and two women from diverse back­grounds. The group of traders were shoved into a large sparse­ly fur­nished room in down­town Chica­go and for two weeks Den­nis taught them the rudi­ments of futures trad­ing. Almost every sin­gle one of them became a prof­itable trad­er, and made a lit­tle for­tune in the years to come.

The Entry Strat­e­gy

The Tur­tles learned two break­out vari­ants or “sys­tems”. Sys­tem One (S1) used a 20-day price break­out for entry. How­ev­er, the entry was fil­tered by a rule that was designed to increase the odds of catch­ing a big trend, which states that a trad­ing sig­nal should be ignored if the last sig­nal was prof­itable.

But this fil­ter rule had a built-in prob­lem. What if the Tur­tles skipped the entry break­out and that skipped break­out was the begin­ning of a huge and prof­itable trend that roared up or down? Not good to be on the side­lines with a mar­ket tak­ing off!

If the Tur­tles skipped a Sys­tem One 20-day break­out and the mar­ket kept trend­ing, they could and would get back in at the Sys­tem Two (S2) 55-day break­out. This fail-safe Sys­tem Two break­out was how the Tur­tles kept from miss­ing big trends that were fil­tered out.

The entry strat­e­gy using Sys­tem Two is as fol­lows:

  • Buy a 55-day break­out if we are not in the mar­ket;
  • Short a 55-day break­out if we are not in the mar­ket.

The entry strat­e­gy using Sys­tem One is as fol­lows:

  • Buy a 20-day break­outs if last S1 sig­nal was a loss;
  • Short a 20-day break­outs if last S1 sig­nal was a loss.

The Tur­tles cal­cu­lat­ed the stop-loss for all trades using the Aver­age True Range of the last 30 days, a val­ue which they called N. Ini­tial stop-loss was always ATR(30) * 2, or in their words, two volatil­i­ty units. Addi­tion­al­ly, the Tur­tles would pile prof­its back into win­ning trades to max­i­mize their win­nings, com­mon­ly known as pyra­mid­ing. They could pyra­mid a max­i­mum of 4 trades sep­a­rat­ed from each oth­er by 1/2 volatil­i­ty unit.

The Exit Strat­e­gy

The Tur­tles learned to exit their trades using break­outs in the oppo­site direc­tion, which allowed them to ride very long trends.

The exit strat­e­gy using Sys­tem Two is as fol­lows:

  • Exit long posi­tions if/when the price touch­es a 20-day low
  • Close shorts posi­tions if/when the price touch­es a 20-day high

The exit strat­e­gy using Sys­tem One is as fol­lows:

  • Close long posi­tions if/when the price touch­es 10-day low
  • Close short posi­tions if/when the price touch­es a 10-day high

Mon­ey Man­age­ment

The ini­tial risk allo­ca­tion for all trades was 2%. How­ev­er, aggres­sive pyra­mid­ing of more and more units had a down­side: if no big trend mate­ri­al­ized, then those lit­tle loss­es from false break-outs would eat away even faster at the Tur­tles’ lim­it­ed cap­i­tal.

How did Eck­hardt teach the Tur­tles to han­dle los­ing streaks and pro­tect cap­i­tal? They cut back their unit sizes dra­mat­i­cal­ly. When mar­kets turned around, this pre­ven­tive behav­ior of reduc­ing units increased the like­li­hood of a quick recov­ery, get­ting back to mak­ing big mon­ey again.

The rules were sim­ple. For every 10 per­cent in draw­down in their account, Tur­tles cut their trad­ing unit risk by 20 per­cent. This of course applies for big­ger num­bers: the unit risk would be decreased by 80% with a 40% draw­down!

Author

Arturo López Pérez, pri­vate investor and spec­u­la­tor, soft­ware engi­neer and founder of Point Zero Trad­ing Solu­tions.

PZ Turtle Trading MT5 

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