Turtle Trading Strategy: Rules, System, and How It Works

2025.09.26 2025.09.26
What It Is Turtle Trading: How the System Works

Gleb Kabanovhttps://www.litefinance.org/blog/authors/gleb-kabanov/

In the world of stock trading, legends about exorbitant profits captivate the imagination, and one of the most famous legendary traders is Richard Dennis, known for his Turtle Trading strategy. This method, inspired by a bold experiment, demonstrated that disciplined adherence to rules can transform novices into successful traders.

Once, Richard Dennis, known as the “King of Futures” for his remarkable success, and his associate William Eckhardt, debated whether a profitable trader needs innate talent or a sound system. The answer came in the form of the Turtle traders, who earned hundreds of millions over several years.

The Turtle trading strategy is founded on two core principles: systematic trend-following to capture significant market movements and rigorous risk management using volatility-based position sizing. This article reveals the secrets of the Turtle trading system and offers practical guidance on implementing it.

Major Takeaways

• Richard Dennis’ Turtle Trading Strategy is the result of a famous experiment on the nature of talent in trading.
• The participants in the experiment — turtle traders — demonstrated that discipline and a systematic approach are more important than intuition, and generated substantial profits.
• The strategy is based on entering trades on breakouts of key levels and following the prevailing trend.
• The key elements include entry rules, stop-loss orders, consistent profit-taking, and customized money management tailored to a deposit amount.
• The trading system strictly regulates position size and risk management.
• The Turtle method is applicable to stocks, futures, Forex, and cryptocurrency markets.
• The primary advantages are simplicity and high profit potential during strong trends.
• The primary risks involve drawdowns during periods of sideways movement and the psychological challenge of adhering to the rules.

What Is Turtle Trading?

The Turtle Strategy is a trading system developed by Richard Dennis and William Eckhardt in the early 1980s. Its essence lies in following market trends, using clear rules for opening and closing positions, and equity management. The strategy completely eliminates subjectivity and intuition; everything is based on a clear algorithm:

• Breaking through certain levels triggers an entry signal.
• Placing dynamic stop-loss orders and adhering to exit rules to lock in profits or limit losses.

The Turtle method is a striking example of a trading system built on the principle of trend following strategies and strict risk management.

The Original Rules: Dennis Eckhardt Experiment

The story began when two friends and successful traders, Richard Dennis, also known as the “King of Futures,” and William Eckhardt, nicknamed the “Prince of the Pit,” had a bet.

Dennis believed that anyone could be taught to trade successfully. A huge turtle farm inspired him to say, “We are going to grow traders just like they grow turtles in Singapore.” Eckhardt, on the contrary, believed that it required innate talent to become a pro. To settle the dispute, they recruited a group of 13 people from different professions, but with no experience in trading in financial markets.

Over two weeks, the novices were taught the rules of a secret system and given real money for trading. The experiment lasted several years and became a sensation. The Turtle traders collectively earned more than $100 million, thus confirming Dennis’s viewpoint. The Turtle trading strategy experiment demonstrated that discipline and adherence to the trading system’s rules are crucial to success in the financial markets.

Who Are The Turtle Traders?

The Turtle Traders were ordinary people selected through a newspaper advertisement. Among them were a poker player, an actor, a student, and an auditor. What they had in common was the ability to think rationally and a lack of prior trading experience. After brief but intensive training in the strict rules of the original Turtle strategy, they were entrusted with managing capital. The most successful of them, such as Curtis Faith and Jerry Parker, later founded large hedge funds, became millionaires, and continued to use and develop the knowledge they had gained.

The Turtle traders became living proof of the effectiveness of the method. Their example demonstrated that even with a small deposit, a cautious technique based on strict risk management and following the trend can yield significant profits. Even now, their story continues to inspire novice traders.

How Does The Turtle Trading System Work

The Turtle Trading System applies the principle of following medium- and long-term trends. Its rules are quite straightforward:

1. Entry levels for opening positions. The method is based on the theory of new momentum formation. The system uses a breakout of highs or lows of the last N days (usually 20 or 55 days) as a signal to open a long or short position.

2. Stop-loss levels. All risks are strictly managed. Stop-loss orders are set beyond the low or high at a level corresponding to a certain market volatility for N trading days. This is a key parameter of the entire system. At the same time, the stop-loss distance is never increased; however, it can be adjusted to a break-even point.

3. Exit the position at a profit. The position is closed when the key level, such as the 10- or 20-day low or high, is broken in the opposite direction. Profit-taking at consistent intervals is a key component of the strategy.

4. Pyramiding (increasing positions). When prices move in a predicted direction, the system allows positions to be increased in increments of 1/2 N, i.e., when the movement equals half the volatility. It is essential to adhere strictly to the rules of capital management.

5. Capital management. The Turtle system places significant emphasis on position size. Traders rely on the volatility indicator to determine the volume of a transaction, typically utilizing the ATR (Average True Range) indicator for this purpose. This approach is designed to mitigate trading risks and prevent excessive strain on the account.

6. Psychology and discipline. One of the most challenging aspects of the strategy is maintaining adherence to its principles, even in the face of temporary market movements that may not align with the strategy’s position. Turtle traders were required to adhere strictly to the established system, without emotional bias.

7. Diversification. Turtles traded a variety of assets, including currency pairs, commodities, bonds, and stock indices. This diversification strategy has been effective in reducing risk and increasing the likelihood of stable profits.

Any strategy should offer a clear course of action, and the Turtle method meets this need with unparalleled precision.

How To Calculate Position Sizes in Turtle Trading

The cornerstone of risk management and the key to the success of the Turtle strategy is the precise calculation of position size. It is based on the N parameter, which is a 20-day exponential moving average (EMA) calculated from the True Range (TR).

where:

Ht — current high for t day;

Lt — current low for t day;

Ct−1 — closing price of the previous day.

Parameter N: 20-day exponential moving average of TR.

EMA(TR,20)t: the value of the exponential moving average of True Range at time t with a period of 20 days.

Position calculation rules:

1. Unit. It is calculated as 1% of the current deposit amount divided by the N parameter in monetary terms. For example, a deposit of $200,000, N = $2,000 (for a contract/share). Unit = (1% * $200,000) / $2,000 = $2,000 / $2,000 = 1. This means that you can buy 1 contract for $2,000 of risk.

2. Position size. The maximum number of units per market is 4. You can accumulate up to 4 units per trend in one market and add one unit of position when the price moves 1/2 N from the previous entry point.

This risk management strategy safeguards your account against significant losses and enables you to capitalize on profitable trends. The size of the position is determined by money management rules and volatility.

How to Use the Turtle Method Trading in Forex and Different Markets

The Turtle Trading Method was originally created for the futures market, but its rules are universal and applicable to stock, Forex, and cryptocurrency markets. The key is to understand the specific nature of the assets and correctly calculate the N parameter.

When employing the Turtle Trading Method in the Forex and cryptocurrency markets, traders should be prepared for heightened risks. This implies stricter capital management rules and additional signal filtering. At the same time, the basic rules for entry/exit and position size calculation remain unchanged, but are tailored to the market’s specific features.

Application in Stocks and Futures

In the stock and futures markets, the original Turtle strategy rules most closely resemble Dennis’ concept. For futures, the N parameter and position size (Unit) are calculated based on the contract specifications. Entry points are determined by breaking through the 20-day (S1) and 55-day (S2) extremes. A stop-loss distance should be set at 2N from the entry point. Position increases (pyramiding) are allowed in increments of 1/2N.

The system works similarly in the stock market. The N parameter is calculated in monetary terms per share. The Unit position size determines the number of shares, and a stop-loss order is set at a distance of 2N.

Trading stocks using the Turtle method requires selecting instruments with sufficient volatility and liquidity while adhering strictly to risk management rules.

Application in Forex and Cryptocurrencies

Using the Turtle Technique in the Forex and cryptocurrency markets requires keeping their specifics in mind. The foreign exchange market is an over-the-counter market with high liquidity, but it often exhibits smaller trends and is highly exposed to news.

The rules for entering on a breakout of 20/55-day extremes are applied on the H4 and D1 time frames to filter out market noise. N (TR) is calculated in points, taking leverage into account. Swaps are factored in when calculating profits and losses. The position size (in lots) is calculated using Unit, where the risk value in points is multiplied by the point value per lot. Stop-losses (2N) and pyramiding rules (1/2N step) shall be followed, as in futures trading.

The cryptocurrency market is extremely volatile, which can lead to significant losses. Therefore, the N parameter is critically important here. Traders should start with a risk of less than 1% per trade due to excessive volatility. Liquidity on some tokens may be insufficient to open large positions. Turtles in the Forex and cryptocurrency markets should be extra careful.

Real Chart Examples of Using Turtle Trading

The Turtle Strategy is a strict trend-following system. It is based on trading breakouts of key levels within a certain period and includes clear rules for entry, exit, and risk management.

How the System Could Have Helped You Buy on Time

The Turtle Strategy offers a mechanical, rule-based approach to finding entry points. This eliminates indecision and emotions:

1. Two system signals:

• System 1 (S1 – fast): breakout of the high or low of the previous 20 days. This is the primary signal for entry, assuming positions are opened during the early stages of the trend.

• System 2 (S2 – slow): breakout of the previous 55 days’ high/low. This signal filters out weak movements. The signal appears later, but its reliability is higher.

2. Market entry:

• When the S1 or S2 level is violated, a position is opened in the direction of the price movement.

• The entry is made at the close of the candlestick on which the breakout occurred or at the open of the subsequent candlestick. This excludes entries based on intraday speculative movements.

• Additional signal filtering with technical indicators is not included in the original rules.

This approach allows traders to enter the market at the beginning of a trend or during its continuation. As you can see, the entry rules are straightforward, unambiguous, and easy to follow.

How It Can Warn About a Price Drop

The Turtle Strategy cannot predict the future, but its rules give clear signals about a potential trend reversal or correction, allowing you to lock in your profits in a timely manner.

1. Exit Signal. The primary signal of a potential trend reversal and the start of a price decline is a breakout of the previous 10-day low. When this occurs, the position should be closed immediately. This signal often indicates the onset of a deeper correction or reversal.

2. Trailing Stop Loss. Protective orders for a long position should move higher as the price rises. It is set at a 2N distance below the high after entry or the point where a position size is increased (pyramiding). If the price starts to fall sharply, the stop-loss is triggered, and a portion of the profit is locked in. This is also a signal of a stronger pullback.

3. Stop-loss Triggering During Pyramiding. If the price reverses after adding a new unit and triggers a stop-loss order, this may be an early signal of a weakening trend. The remaining part of the position should be protected by a stop-loss moved to a break-even level.

Advantages and Disadvantages of Turtle Trading

Advantages:

• Simplicity and clarity. Clear rules keep emotions and subjectivity out of the equation, making it easier for new traders to follow the system.
• Discipline. The method builds iron discipline, which is key to trading success.
• Potential for large profits. During strong and sustained trends, the method allows you to build up positions, hold them, and thus capture most of the movement.
• Effective risk management. Calculating position size based on N volatility and strict stop-loss management protects your deposit from large losses.
• Versatility. The Turtle Trading System can be applied to stocks, futures, Forex, and crypto markets.
• Time-tested. The success of turtle traders is real proof of the system’s effectiveness when its rules are strictly followed.

Disadvantages:

• Drawdowns During Flats. When there is no clear trend, the system may generate numerous false signals, which can result in a series of unprofitable trades.
• Psychological Challenges. The system requires iron will to follow the rules after a series of losses or when prematurely closing a profitable position.
• Delay. Entry on a breakout occurs after the trend has started, and exit on a stop loss below the 10-day low/high can wipe out a significant amount of profit.
• Significant Capital Required. A substantial deposit is required for effective diversification across multiple markets and to compensate for drawdowns.
• Dependence on Volatility. In low-volatility markets, the profitability of the strategy decreases dramatically.

Turtle Trading vs Other Trading Strategies

The Turtle Strategy diverges significantly from other popular strategies in its underlying principles and execution. It is based exclusively on price action, breakouts, and volatility. This strategy is characterized by its pronounced emphasis on trend analysis and is not well-suited for flat conditions. The method does not utilize additional indicators and is not designed for short-term trading. However, it does take money management rules into account.

Turtle Trading vs MACD Strategy

The strategy is based on the MACD indicator. It generates signals when the MACD line crosses the signal line as well as when divergences occur. The indicator often gives early reversal signals, rather than breakouts of levels, according to the Turtle Trading rules. However, MACD signals can be false. The indicator can be used both when trading within trends and in a trading range. The Turtles, on the other hand, only work when there is a strong trend.

When using MACD, stop-loss orders are usually set at support and resistance levels, while volatility is also taken into account. The Turtles have strict rules for calculating losses (2N) and position size. The MACD indicator gives traders more opportunities to interpret signals, while the turtles are a completely “mechanical” system.

The MACD strategy is more flexible and less strict. The Turtles is a more reliable strategy in terms of money management, particularly during strong trends, but it is less effective in flat markets. The MACD indicator can be useful to traders for additional signal filtering on lower time frames, although this is not included in the original strategy rules.

Turtle Trading vs RSI Strategy

The Relative Strength Index (RSI) measures the speed of price movement and determines whether an asset is overbought or oversold over a specified period. The RSI is a perfect tool for range trading or trading corrections. It signals impending trend reversals.

Turtles, on the other hand, enter the market based on price trends. The RSI is effective in weak trends but can give false signals in strong trends. The Turtles strategy is employed in strong trends.

Stop-loss orders in the RSI strategy are usually set at your discretion. Turtles, on the other hand, calculate risks mathematically. The RSI indicator requires interpretation of zones and searching for divergences between its readings and the price. The Turtle system gives clear entry and exit signals.

The RSI strategy and Turtle Trading have different approaches. The RSI is a counter-trend strategy, known as swing trading, which performs well in weak trends and at the end of corrections. The Turtle strategy is a trend-following system. Today, these strategies can complement each other.

Conclusion

The Turtle Strategy remains one of the most famous trading systems in history. Dennis and Eckhardt’s experiment demonstrated that discipline and adherence to clear rules are more important than intuition or innate skills. The essence of the method lies in mechanically following market trends, implementing proper risk management, utilizing dynamic stop-loss orders, and maintaining consistent profit-taking.

It is extremely effective in strong trends, allowing you to capture a significant part of the price movement. The original rules of the Turtle strategy are not just a set of techniques, but rather a trading philosophy. It requires strict discipline, but offers traders a proven way to make profits in any market, from futures and stocks to Forex and cryptocurrencies. Any strategy must provide a clear algorithm of actions, and the Turtle method is a brilliant example of this.