Way of the turtle

•
131
•
ten
TURTLE-STYLE TRADING:
STEP BY STEP
Keep it simple. Simple time-tested methods that are 
well executed will beat fancy complicated methods every time.
T
his chapter will look at some Turtle-style trading systems, more
commonly known as long-term trend-following systems. Those
systems are as follows:
• ATR Channel Breakout: A volatility channel system that
uses ATR as the volatility measure.
• Bollinger Breakout: A volatility channel system that uses
the standard deviation as the volatility measure.
• Donchian Trend: A breakout system with a trend filter.
• Donchian Trend with Time Exit: A breakout system with a
trend filter and a time-based exit.
• Dual Moving Average: A system that buys and sells when a
faster moving average crosses over a slower moving average.
Unlike the other systems, this system is always in the market,
either long or short.
Copyright © 2007 by Curtis M. Faith. Click here for terms of use. 

---

• Triple Moving Average: A system that buys and sells when a
faster moving average crosses over a slower moving average
but only in the direction of the major trend defined by a
very slow-moving average.
To examine the differences among these systems, I ran a series
of historical simulations to determine how much money one would
have made if one had used each of those systems for the last ten
years. This chapter will use some of the metrics discussed in Chap-
ter 7 to compare the relative performance of each of the systems.
To Test or Not to Test
There are many traders, including quite a few successful ones, who do
not believe in historical testing, sometimes referred to as backtesting.
They believe that testing with historical data is not useful because the
past will not repeat itself. For readers who are not familiar with this
debate, I am going to spend several paragraphs convincing you of
something that you probably think needs no explanation. To those who
do not believe in historical testing, my question is: What is the alter-
native? How do you arrive at any strategy without knowledge of the
past? How do you determine when to buy or sell? Do you guess?
The only information you have is what the markets have done
so far. Even if you are a discretionary trader who does not use rules
or systems, you still have your personal experience of historical
price action as a guide. You are relying on your interpretation of
the past; in effect you are relying on historical data. 
Smart discretionary traders can develop systems after years of
experience in trading. They note repeating patterns that offer