Way of the turtle

282
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Index

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MAR ratio, 104–105
maximum drawdown, 97
with price shocks, 92–95
R-cubed, 188–189
R-squared, 97
Sharpe ratio, 100–104
standard deviation of returns, 97
with system death, 94, 96, 105–106
and tolerance for pain/expectations for
reward, 106
in Turtle Way, 37
and types of risk, 86–87
unified, 98
Mechanical trading systems, 16, 
245–246
MFE (see Maximum favorable excursion)
Mies van der Rohe, 268
Mindset for trading, 36, 47–62
being right vs. making money, 48–49,
61
and blame for failures, 61–62
and focus on future, 48–50, 53
and focus on past, 49–51
probabilities thinking in, 53–60
and taking responsibility for outcomes,
61–62
Minimum tick, 6
Money:
happiness and, 241–244
making, being right vs., 48–49, 61
Money management, 109–121
as art, 110
backtesting algorithm for, 136
defined, 32, 109
estimating risk in, 120–121
level of risk in, 110–113
N factor in, 117–120
and risk of ruin, 113–116
in Turtle Classes, 32–33
uncertainty in, 116–117
in the Way of the Turtle, 117
Monte Carlo simulation, 199–205
Moving averages, 124
as building blocks, 125–127
dual, 131, 141–142
exponential, 126–127
simple, 126
triple, 132, 142–143
with volatility channels, 127, 128
N factor, 33, 117–120, 251–252
New Concepts in Technical Trading 
Systems (J. Welles Wilder), 33
Normal distribution, 53–54
Observer effect, 153
Optimization, 163
and myth of the expert, 134
need for, 164–166
rolling optimization windows, 
197–199
single-market, 195
Optimization paradox, 153, 164–172
and basis of predictive value, 168,
170–172
deception associated with, 172
moving average days parameter,
166–169
and need for optimization, 164–166
overfitting vs., 172–173
Or better orders, 34
Outcome bias, 15, 19–20
expectation and avoidance of, 35–36
in Turtle System, 48–49
Outcomes, taking responsibility for,
61–62
Overfitting, 172–177
defined, 153, 163
optimization paradox vs., 172–173
and sample size, 176–177
Parameter scrambling, 196–197
Parameters, 163, 166–172
Perception:
edges from differences in, 75, 84
price movement and, 8
of support and resistance, 78
Performance measures, robustness of,
182–186
Pits, 9–10
Points of price instability, 82–84
Portfolio filters, 68, 69, 71, 72, 212
Position sizing, 118, 251–258
Position traders, 4 (See also Speculators)
Position trading, 24
Predictive value, 168, 170–172, 180
Price(s):
fluctuation in, 6
as foundation for traders, 2
Index
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283

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Price(s): (continued)
points of price instability, 82–84
spread of, 4
support and resistance for, 77–81
Price movement, 7–9
cause of, 8
good and bad parts of, 65–67
psychological factors in (see
Psychological biases in trading)
in trend following, 22
Price risk, 4
Price shocks, 87, 92–95
in illiquid markets, 216
volatility-based position sizing to avoid,
118
Probabilities thinking, 52–60
histograms, 55–60
normal distributions, 53–54
Probability density graph, 54
Probability mathematics, xxv, 31
Pseudo-experts, 134–135
Psychological biases in trading, 13–21
anchoring, 20
bandwagon effect, 20
as basis of Way of the Turtle, 14–15
disposition effect, 19
law of small numbers, 20–21
loss aversion, 16
outcome bias, 19–20
rational actor theory and, 14
recency bias, 20
sunk costs, 16–19
(See also Mindset for trading)
Psychological strength, 44, 232
Random effects, 152, 158–162
RAR% (see Regressed annual return)
Rational actor theory, 14
R-cubed, 188–192
Recency bias, 15, 20
and support/resistance levels, 77–78
in Turtle System, 49–50
Regressed annual return (RAR%),
186–188, 190–192
Regression effect, 160
Reminiscences of a Stock Operator
(Edwin Lefèvre), xxiii, 223
Resistance (see Support and resistance)
Responsibility, taking, 61–62
Results, historical vs. actual (see
Discrepancies between testing and
trading results)
Reversion to the mean, 160–161
Rewards:
expectations for, 106
measures of (see Measures of risk/
reward)
Risk(s), 2
with alternative investment funds,
101–102
business, 2
definitions of, 85
drawdowns, 87
estimating, 120–121
excessive, 110
expectation of, 37
hedging, 2–4
liquidity, 3–4
low returns, 87
managing, 39
measures of (see Measures of risk/
reward)
price, 4
price shocks, 87
probabilities of, 52
proper levels of, 110–113
rules for estimating, 120–121
system death, 87
trading, 3–4
transfer of, 2
types of, 86–87
units as measure of, 255–257
Risk of ruin, 113–116
in gambling, 31–32
managing (see Money management)
and money management, 113–116
taught in Turtle Classes, 31–32
Risk/reward ratio, 85
R-multiples, 59–60
Robust performance measures, 184–186
Robust Sharpe ratio, 189–192
Robust statistics, 183
Robust trading, 209–221
adaptation to market conditions in,
211–213
diversity in, 210
market diversification for, 213–219
simplicity in, 210–211