Way of the turtle

280
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Index

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measures of risk/reward with, 87–91
tolerance for, 116
in trend following, 23
Dual Moving Average, 131, 141–142,
144–145
Eckhardt, William (Bill), xvii, xx–xxv
classes taught by, 30–31, 33, 35, 37
on entries, 269
evaluation of Turtle class by, 44
N factor used by, 117–119
on robust estimators, 183–184
and trades made by Turtles, 86
Edge ratio (E-ratio), 65–70
Edges, 63–73
defined, 34, 63
elements of, 64–65
E-ratio, 65–70
exit edge, 71, 73
in gambling, 34–35, 63
as points of price instability, 82–84
random effects with, 158–159
reason for existence of, 75
of support and resistance, 75–82
in trading, 63–64
for trend followers, 81
trend portfolio filter edge, 69, 71, 
72
in Turtle Way, 34
Ego, 224–229
Electronic exchanges, 9–10
Electronic markets, 9, 10
Emotional strength, 44
Emotions in trading (see Psychological
biases in trading)
Entries:
as edges, 64
simultaneous signals for, 270–271
strategies for, 64
tactics for, 269
in Turtle Classes, 33–35
in Turtle Trading System, 258–262
Equity curve scrambling, 201, 203
Exchanges, 6, 9
Exit threshold, 168, 169
Exits:
edges for, 64, 71, 73
strategies for, 64
time-based, 125, 127, 128
from trend-following systems, 39
in Turtle Trading System, 266–268
Expectations:
for reward, 106
taught in Turtle Classes, 35–37
unrealistic, 114, 115
Experts, myth of, 134
Exponential moving averages, 126–127
Failure:
blame for, 61–62
factors leading to, 114
and intelligence, xxv
learning from, 239–240
and making of money, 48
as part of trading, 49
Fast market conditions, 269–270
Fat tails, 56
Feynman, Richard, 200–201
Foreign markets, 213
Forward contracts, 2
Frost, Robert, 235
Fundamentals-driven markets, 217
Futures contracts:
contract specifications of, 5–6
criteria defining, 5–6
in electronic markets, 10
hedging with, 2–4
interest-rate, 120
rolling over, 272
and trading pits, 9
Gaming theory and strategy, xxv
edges in, 34–35, 63
expectation in, 36
money management in, 109
in Turtle Classes, 31
Geometric average return, 97 (See also
Compound annual growth rate)
Going short, 4
Harvard Investment Service, xxiii–xxiii
Hedgers, goal of, 6
Hedging, 2–4
Herd effect, 20
Histograms, 55–60
Historical results, actual results vs. (see
Discrepancies between testing and
trading results)
Index
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281

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Historical testing (see Backtesting)
Humility, 229–230
Illiquid markets, 216
Interest-rate futures, 120
Investors, 1–2
Irrational Exuberance (Robert Shiller), 
13
Irrationality, 14 (See also Psychological
biases in trading)
Johnson, Mark, 136, 137
Kiev, Ari, 232
Law of small numbers, 16, 20–21
LeBeau, Chuck, 137–138
Lefèvre, Edwin, xxiii, 223
Limit orders, 34
Linear regression, 186
Liquid assets, 3
Liquidity risk, 3–4
Livermore, Jesse, xxiii, 223
Long positions:
exit threshold for, 168
and price movement, 9
Longest drawdown, 97
Long-Term Capital Management
(LTCM), 86, 102–103
Long-term trend-following systems,
131–149
ATR Channel Breakout, 136–137
Bollinger Breakout, 137–138
Donchian Trend, 139–140
Donchian Trend with Time Exit, 
140
Dual Moving Average, 141–142
stops added to, 145–147
testing, 132–133, 135–136, 143–145,
147–149
Triple Moving Average, 142–143
types of, 131–132
Loss aversion, 15, 16
Losses:
approach to, 37
cutting, 262
with trend following, 96
Low returns, 87, 92
Lowenstein, Roger, 103
LTCM (see Long-Term Capital 
Management)
Lucas, David, 137–138
Luck, 161, 162, 196
MAE (see Maximum adverse excursion)
Managed Accounts Reports, LLC, 104
Manhattan Project, 199–201
MAR ratio, 104–105
drawdown component of, 186–187
R-cubed vs., 191–192
robustness of, 184–185
Margin of error, 179
Margin requirements, 33
Market makers, 4
Market states, 25–27, 123
Market Wizards (Jack D. Schwager), 245
Markets, 4
adapting to conditions of, 211–213
in backtesting, 135
choice of, 213–216
comparing between, 59
complexity of, 201
diversification across, 213
electronic, 10
emotional/mental bases of patterns in
(see Psychological biases in trading)
equating price movement across,
66–67
predicting, 48, 52
strongest vs. weakest, 271–272
and trader memory, 218–219
transfer of risk in, 2
trends in, 38
in Turtle Trading System, 249–250
types of, 216–218
volatility of, 25–27
Maximum adverse excursion (MAE),
65–67
Maximum drawdown, 97, 188
Maximum favorable excursion (MFE),
65–67
Measures of risk/reward, 85–107
average monthly return, 98
average one-year trailing return, 98
compound annual growth rate, 97–98
with drawdowns, 23, 87–91
longest drawdown, 97
with low returns, 92