- : December 1, 2020
- : Prashant Shah
Turtle trading is a popular trading strategy that was originally taught by Richard Dennis. The strategy was to buy on a 20-day breakout (when price goes above 20 day high) and sell on a 20-day low (when price falls below 20-day low). There were more rules to this strategy like pyramiding, 55-day breakout rule etc.
It was an initiative by Richard Dennis and his friend Bill Eckhardt. There was an argument that whether traders can be trained or they are born with some special skills. Richard Dennis successfully traded a trend following system and he decided to teach it to a group of people. They interviewed people and selected 24 traders. Allocated the money to them and explained the strategy. Some traders from the lot became successful traders and fund managers, others could not follow it with discipline. It is said that they penalised the traders and reduced the allocation who did not follow the rules with discipline and rewarded the ones who followed the rules.
While this method can still be followed, and we can run a scanner in TradePoint to find candidates trading above 20-day high.
You can change the period and experiment.
When I read about Turtle system, I realised that same thing can be applied on P&F charts as well. What is the difference?
Turtle is a 20-day breakout method, a candle will appear irrespective of price movement. We can get a 20- day breakout during consolidation or range bound phase which may result in whipsaws.
P&F chart does not get plotted during sideways period, that can help in reducing trades during such phases.
I recommend 5-X Turtle breakout for bullish trades. See below image to understand the same.
If current column of X goes above highest ‘X’ in last 5 columns (including current column), then it is a 5-X Turtle breakout.
When we say 5-Xs - it considers price movement of how many days?
Depends on the swing pattern. Period will be more in case of consolidation phase. Hence, this is a turtle breakout system based on price, not time.
Buy on 5-X turtle breakout and Sell on 5-O turtle breakout. You can also increase the parameter to 10- column instead of 5.
But there is more to write about this system. There can be few more rules added to the system to improve the performance of P&F turtle trading system.
But how to take advantage of this pattern in your current method of analysis.
Let’s create a pattern that can help you pick short-term trades?
P&F Turtle breakout shows us a consolidation breakout or range breakout. It can also be a continuation breakout which tells us that price is in a strong uptrend. In any case, price trading above last 5-Xs is an important information.
P&F Follow-through is a master key to solve many problems. How about follow-through to 5-X turtle breakout?
Sell below image.
We can define the initial risk and scan for the probable follow-through breakout.
How to define a scanner?
Go to TradePoint -> Backtesting -> System Builder -> P&F -> Add Put below mentioned conditions:
- Bullish Turtle breakout at 2
- Less than 8 boxes at 1
- Not double top buy at 0
Normally, bearish strategies are opposite of bullish strategies. But with this case, I recommend a parameter of 3-Os instead of 5.
Below are conditions for Turtle FT – Bearish Probable
This strategy is more useful on lower box-value such as 0.25% on EOD chart and 0.15% - 0.25% on one-min timeframe chart.
Below is a candidate that appears in EOD scanner of Bullish Turtle – FT probable.
A double-top buy breakout will trigger a turtle breakout follow-through pattern and activate a bullish vertical count placed from the Mini-bottom. It will also be a bullish 100% pole and Bullish broadening follow-through. It is also trading above moving average and bullish 45-degree trend line.
You can analyse the chart this way once it appears in your scanner list. How about checking relative strength chart of ACC?
But it is a Cement sector, and exchange does not provide Cement sector index. You will find Cement sector stock group in TradePoint created by us.
Got to Chart -> Weighted Average Index chart and select Cement sector.
Right click on the chart and export data in csv format and save it to My Market folder. Import the file back in the TradePoint. Link below explains how to do that.
Below is a Cement sector P&F chart.
Follow-through to Bullish Turtle breakout is already triggered in this sector index chart!