Turtle Trading System Revisited: Is It Still Profitable?

The Turtle trading system is a system where a group of traders follow specific rules to buy and sell commodities. The rules are based on the observations of Richard Dennis, who believed that anyone could be taught to trade successfully if they followed a set of simple rules. The Turtles were given a set amount of money to trade with, and they were only allowed to use the money to buy and sell commodities. The rules they followed were designed to keep them from losing money and to make sure they always had enough money to cover their losses and initiate new positions.

The Turtle trading system was so successful that it became one of the most popular trading systems in the world, and it has been used by some of the most successful traders in history. The basic premise of the Turtle trading system is based on breakout theory, which is the idea that prices move in trends. The system looks for breakout points, where the price of a commodity breaks out of its previous trading range and then buys the commodity. The system shorts the commodity when the price breaks down from its current trading range.

Reference [1] examined the profitability of the Turtle trading system in the modern-day context. It tested the system on the major market indexes and concluded,

The TTR-strategy [Turtle] can be translated to major market indexes, however the performance is poor. Because of the difficulty to pick up and make profit out of unstable trended behavior found in the index price data, the model is not viable for investors wanting to generate large returns. The maximum 20-year return on invested capital for the TTR-model was about 25 %, which put in context to industry competitors is low. They for example present a 3-year return on investment (ROI) of about 22 % and a 20-year ROI of about 95 %. Furthermore, as an investor one should expect a ROI of about 7 % above inflation (Leonhardt, 2021). It is obvious that the TTR-model fails to deliver such results, and hence the model is not viable for asset managers.

In short, the Turtle trading system is no longer profitable in the major index market these days.

The article also explored the characteristics of an ideal market in which the system would become profitable. However, such a market, which should have low volatility and a clear trend, does not exist in the modern days.

References

[1] Malkolm Larsson, Johan Lövgren, Viability Evaluation of the Turtle Trading Rules on Major Market Indexes, 2022, KTH Royal Institute of Technology

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