Way of the turtle

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Way of the Turtle

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The Results Are In
I tested all six systems with the same test data—money manage-
ment, portfolio, and test start and stop dates—using our trading sim-
ulation software, Trading Blox Builder. The software ran a
simulation for each of the systems from January 1996 through June
2006. It simulated every trade and generated performance statistics
for each of the systems. Table 10-1 shows some of the most com-
mon performance metrics for each of the six systems.
Turtle-Style Trading: Step by Step
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143
SB: Sugar #11 World-CSCE
Dec 20
05
Nov 2005
Oct 2005
Sep 2005
Aug
2005
12.0
11.5
12.5
13.0
13.5
14.0
14.5
15.0
16.0
15.5
11.0
Figure 10-5
Triple Moving Average System
Copyright 2006 Trading Blox, LLC. All rights reserved worldwide.

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Table 10-1
Historical System Performance Comparison
Max DD 
System
CAGR% MAR Sharpe Trades W% 
DD
Length
ATR CBO
49.5% 
1.24
1.34
206
42.2% 39.9% 
8.3
Bollinger CBO
51.8% 
1.52
1.52
130
54.6% 34.1% 
7.8
Donchian 
Trend 29.4% 0.80
0.99
1.832
39.7% 36.7% 27.6
Donchian 
Time
57.2% 1.31
1.35
746
58.3% 43.6% 12.1
Dual MA
57.8% 
1.82
1.55
210
39.5% 31.8% 
8.3
Triple MA
48.1% 
1.53
1.37
181
42.5% 31.3% 
8.5
Source: Copyright 2006 Trading Blox, LLC. All rights reserved worldwide.
Note: Channel Breakout is abbreviated as CBO and Moving Average is abbreviated as MA,
Drawdown as DD, Maximum as Max, and Winning Percentage as W% in 10-1 and other
tables in this book.
When I first tested the time-based exits, I was floored. They per-
formed far better than I had imagined they would, better even than
the breakout-based exits. So much for the idea that it is the exit that
makes a system profitable. This shows that an entry that has an edge
can account for the entire profitability of a system.
Note also how the Donchian system did not perform as well as
the other systems. This highlights how breakouts have lost some of
their edge in the years since the Turtle program. I believe this is
largely due to what I describe in the Chapter 11 as trader effects.
The other notable surprise in Table 10-1 is the performance of the
Dual Moving Average system, which demonstrated better perform-
ance than did its more complex counterpart the Triple Moving Aver-
age System. This is just one example of many that suggest that the
fact that a system is complex does not necessarily make it better.
All of these are basic systems. Three of them—the Dual Moving
Average system, the Triple Moving Average system, and the Donchian
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Way of the Turtle

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Trend with time-based exit system—do not even have any stops.
This means that they violate one of the most cherished maxims of
trading—“Always have a stop loss”—yet their risk-adjusted per-
formance is as good as or better than that of the other systems.
Adding Stops
Many traders are uncomfortable with the idea of having absolutely
no stops. What do you think will happen to the performance of the
Dual Moving Average system if we add stops? Many people like to
speculate about these sorts of things. They ask their friends or go
to more experienced traders with their questions.
I prefer to try out an idea and benefit from the confidence that
comes from having concrete answers. Figure 10-6 demonstrates the
effect of using a stop at various widths in ATR from the point of
entry.
Note that the zero case, which means no stop at all, has the best
MAR ratio numbers. In fact, the test with no stops is better for all
the metrics: CAGR%, MAR ratio, Sharpe ratio, drawdown, and
length of drawdown—every single metric. The same thing holds
true for a test of the Triple Moving Average system: Every single
measure was worse with any stops. The same test of stops applied
to the Donchian Trend with time-based exit system yields similar
results except that for very large stops of 10 ATR or more, the results
are about the same as those for a test with no stops. This certainly
goes against the common belief that one must always have a stop.
Why is this? Weren’t we taught that stops are very important for
preserving capital? How come the drawdowns do not go down
when we add stops?
Turtle-Style Trading: Step by Step
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