How To Do Back Testing Of Turtle Trading Strategy?

Analysts Turtle Farm

In the year 1983, a famous personality Richard Dennis introduced the turtle experiment. He was commodity (futures) traders, believed in “anyone could be  taught to trade” principle. Within a few years, Dennis was considered as the most successful trader in the trading world. The real-life story of him is really an inspiring one. He had turned his $5000 into more than $100 million. His principle is anyone could be taught to trade the future markets. The turtle trading strategy mainly works on future trading. In this article, besides getting a basic concept regarding turtle trading, you will also come to know about the back testing of the Turtle Trading strategy.

More On Turtle Trading

In order to conduct a Turtle program, Richard placed an ad in The Wall Street Journal. As a result, thousands of candidate applied to learn to trade. Among the thousands, only 14 traders would make it through the first program of Turtle strategy. Though no one was acquainted with the exact criteria of Dennis, the strategy consists of a series of True-False questions.

The base of the particular strategy is to buy future contract on a 20-day high (breakout) and sell on a 20-day low. This fundamental strategy provides guidance on implementation of a trend-following strategy. It defines why traders should buy future breaking out to the upside of trading ranges and sell short downside breakout. The strategy implies as an entry signal buying new four-week highs. Though for many years the exact parameters of Dennis were kept secret, some of them are released as a turtle strategy.

Turtle able to find the answers to these following questions:

  • What is the volatility of the market?
  • What is the system orientation?
  • What is the risk?
  • What is the state of the market

The formula is based on “N”, it is 20 days EMA (Exponential Moving Average) of true range. A 20-day ATR (Average True Range) can also be used.

Back Testing Of Turtle Trading Strategy

I have mentioned that I am going to tell you about the back testing of Turtle Trading Strategy. I used a software called Analyst’s Turtle Farm for that. The back testing was started from 05-06-2013 in Nifty Futures.

back testing

The back testing image shows that the system has generated decent returns in the Turtle Trading Strategy.

How To Do Back Testing Of Turtle Trading Strategy?

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