A Complete Trading System Used by

Professionals to Make Millions

If there's one thing that most traders are always looking for, is a set of rules or a system that allows them to trade
the markets profitably. In this article I will describe a complete trading system used, in the past, by a very famous
trader and the people he taught, and then later on by several hedge funds managed by his disciples.
It can be used "as is", without any modifications, or you can use it as a basis to develop your own system, further
enhancing the power of the original rules.
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The Turtle bet
In the early-1980s, one of the greatest and richest traders of the 20th century, Richard Dennis, and his friend Bill
Eckhardt, were having an ongoing discussion on the viability of teaching people how to trade. Richard was
convinced that it was possible to teach ordinary people to become good traders, while Bill believed that great
traders possessed a natural skill, some sort of sixth sense that could not be taught.
In order to settle this discussion they made a bet: they would recruit a few inexperienced people for their trading
company, C & D Commodities, teach them the rules of the system they already used, give them capital to trade,
and then see if they had become good traders or not.

These people would become known as "The Turtles", because Richard once famously said: "we are going to
grow traders like they grow turtles in Singapore".
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The philosophy behind the system

Richard and Bill did not believe that the future direction of the markets could be predicted consistently in the long
run, so it was futile to even attempt it. Their whole approach to trading was based on following the market's
momentum after a breakout. The idea behind it is that once the market breaches a resistance/support (previous
high/low), it is likely to continue in the same direction.
Losing trades are quickly closed once the stop-loss is hit, while winning trades are kept open until the trend
reverses, no take profit orders are used.
They were also convinced that a mechanical trading system with rigid rules was the best way to trade, because
this way many of the emotions that demonize a discretionary are minimized and even erased. A good mechanical
trading system makes it possible to be consistent all the time, and consistency is a key skill to have in order to be
successful.
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Ingredients of the system
Time-frame
Even though the original system used daily bars, you can use any time-frame you wish. However, the shorter the
time-frame the lower the profit factor of any system will be, due to trading costs remaining constant and profit
potential getting lower. A good technical system should be time-frame neutral, so if you see a system which
requires a very specific time-frame to work, be cautious.
Recommended pairs
Like the time-frame, a good system should work on all markets, as long as their are liquid, and the costs are low.
The Turtles traded currencies, bonds, and commodities with this system. I advise trading as many currency pairs
at the same time as possible (scaling back the amounts accordingly), because diversification, when done
correctly, is the best way to lower risk while keeping the profit potential intact.
Indicators
- ATR 20
- Donchian Channel 10, 20 and 55. This indicator forms a channels and simply shows the highest high and the
lowest low of the last n periods.
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Preparing your charts
Open up your platform and add a ATR 20 indicator. Now add a Donchian Channel 55, with high values in blue,
low values in red, and line width 3, like this:

Then add a Donchian Channel 20, blue and red again, line width 2. And finally a Donchian Channel 10, still blue
and red, line width 1, line style dashed (---). This is how it should all look like in the end:

This is just for cosmetic purposes, you can use other colors and line widths, but these ones work well.
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Finally the rules
This system is formed by two sub-systems. System 1 uses a shorter time-frame based on 20-bar breakouts,
while System 2 uses a longer time-frame based on 55-bar breakouts.
Entries
Open a long or short position if the price exceeds the high or the low price respectively of the past 20 periods
(Donchian Channel 20).
If the previous 20-bar breakout resulted in a profitable trade this new breakout would be ignored. The previous
breakout for this rule is considered the previous breakout shown in the chart, irrespective of its direction (long or
short), or whether or not that trade was actually opened, or skipped because of this rule.

If a 20-bar breakout is ignored, you are at the risk of missing a big trend, if the price continues to move in the
direction of the breakout, so this is where System 2 is useful. If the price exceeds the 55-bar high/low you open a
long/short position respectively, in case you didn't open a trade at the 20-bar breakout. All 55-bar breakouts are
taken, whether or not the previous one was a winner.
Exits
The system uses manual trailing stops, so a System 1 trade would be closed if the price moved against the
position and exceeded the 10-bar low/high.

System 2 trades would be closed if the price went against the position and exceeded the 20-bar low/high.
Initial stop-loss
These exits can be very far away from the entry price, so the initial stop-loss is placed at 2 x ATR 20 for both
systems. Example, if the ATR is 50 pips, then the initial stop-loss would be placed 100 pips from the entry price,
and then manually updated once the 10 or 20-bar low/high is lower/higher than the initial stop.
Position sizing and money management

I'm not going to fully describe all rules in this subject because they are unnecessarily complicated for an average
trader, and we have to remember that they traded futures contracts with fixed sizes, so the calculation for position
sizing is a bit different for spot Forex.
You can use the money management calculator I made, which is perfect for Forex, while still adhering to the
principles of this system. It will indicate the correct amounts to trade as well as where to place the initial stop loss,
given the ATR and how much of your capital you want to risk.
The Turtles risked 2% of their accounts on each trade, and could have 12 positions at the same time. If you trade
20 uncorrelated pairs I would advise risking around 1-1.25% on each trade, 10 pairs 1.5-1.75%, 5 pairs 2-2.25%,
and 1 pair you can risk 5% at the most (live accounts).
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What to expect with this system
Being a trend-following system, it is obviously very profitable when there are clearly defined trends in the market,
and will experience losses when the market is trading sideways. The win ratio of a system like this, which focuses
on quickly closing losing trades while keeping winning trades open until the trend reverses, is around 35 to 40%,
but winning trades will be larger than losing ones, so the risk-reward ratio is at least 1:2.5 or 3. In the long run,
you will make money with such statistics.
Drawdowns depend on the leverage used and level of diversification, but as a rule of thumb you can expect to
have a maximum drawdown similar to the CAGR. So if the leverage you use makes it possible to achieve a
CAGR of 25%, you can expect to eventually have a maximum drawdown of about 25% as well. Risking 1.25%
per trade and using 20 pairs you'd probably achieve this CAGR over the long run.
This is not a perfect system, especially taking into consideration that the markets are choppier and have more
false breakouts these days than in the 1980s. A good way to improve it would be add a filter that keeps us out of
the market when there are no trends. For example, adding a 200SMA and only opening long trades when the
price is above the 200SMA, and short if it is below. Remember, there are no perfect systems, but this one - and
others similar to it - have consistently produced profits for the last 3 decades.