Turtle Trading Explained: The Original Trend-Following Rules

The original Turtle Trading experiment tested whether ordinary people could be taught to trade through a complete set of objective rules. The method focused on trend following, volatility-based position sizing, diversification, and disciplined execution—not predicting market direction.

The story behind the Turtles

Futures trader Richard Dennis believed successful trading could be taught, while his partner William Eckhardt was more skeptical. Dennis trained a group of novices who became known as the Turtles and gave them specific rules governing markets, entries, position size, additions, stops, and exits.

Rule 1: Trade breakouts

The Turtles used two related trend-following systems. System 1 entered when price exceeded the previous 20-day high or low. System 2 used a longer 55-day breakout. A move above the channel created a long signal; a move below created a short signal.

System 1 included a filter tied to whether the prior theoretical breakout was a winner. System 2 took every qualifying 55-day breakout. The purpose was to participate when a genuine trend expanded beyond its recent range.

Rule 2: Size positions by volatility

The system used a volatility measure called N, based on the market’s average true range. A unit was sized so that markets with greater price movement received smaller positions and quieter markets could receive larger positions. This allowed risk to be compared across different futures markets.

Rule 3: Add only as the trend moves in your favor

The Turtles could add units at one-half-N intervals after a profitable move. This is pyramiding into strength. It is fundamentally different from a grid that adds positions while price moves against the initial trade.

Rule 4: Define losses before entering

Initial protective stops were generally based on two N from entry, with adjustments when units were added. The objective was to limit the damage of any individual failed breakout while remaining available for the occasional large trend.

Rule 5: Let trends determine the exit

System 1 generally exited long positions on a 10-day low and shorts on a 10-day high. System 2 used a slower 20-day opposing breakout. These rules could surrender significant open profit before confirming that the trend had ended, which made discipline essential.

Rule 6: Diversify and control total exposure

The rules limited units in a single market and across highly correlated markets. Diversification gave the system more chances to capture a major trend, while portfolio limits prevented several similar positions from silently becoming one oversized bet.

What traders often misunderstand

• The system did not win on every breakout.
• Many small losses were expected.
• A few large trends were intended to offset repeated failed entries.
• Position sizing and portfolio limits were as important as entry signals.
• Changing rules emotionally could destroy the system’s statistical logic.

Turtle Trading versus the CSI approach

Turtle Trading adds exposure after price moves favorably and exits on opposing channel breakouts. The CSI MA-grid approach may add equal-sized positions after adverse movement to improve the average entry, then manages individual profit targets, hedging, and drawdown. Both depend on consistent rules, but their position-building logic is not the same.

The enduring lesson

The Turtle experiment demonstrated that a strategy is more than an entry signal. A complete method needs position sizing, loss limits, portfolio rules, exits, and the discipline to follow them. No rule set guarantees future profit.

Historical rule details summarized from Curtis Faith’s The Original Turtle Trading Rules.