Donchian Trend Following - Way of the Turtle

[Rastan]

Hi Everyone,

(I wanted to wait till I had the book with me so I could put the page no, but I'm at work so here goes anyways...)

[Caveat: I am a complete novice]

I am reading 'The Way of the Turtle' (Curtis Faith) [I'm about into ch 7] and it shows a graph of the returns using a (standard?) Donchian trend following system from 96-06 based on starting capital of $100K. At the end of the 10 years it is worth 5.5 Mil!!!

Assuming this is a 'standard' system that anyone (with the gumption and minimum intellect) could implement, why isn't everyone doing this now???

The chapter it appears in is explaining that the common affliction in following the system is the times that you need to take large (>50% sometimes) draw downs, and that a lot of people dont stick at it.

I am (very lightly) toying with the idea of lending 100K and doing it myself (possibly using a fund manager), as I think the market has at least another 3-5 good years of growth.

Any thoughts?

Rob

 

[tech/a]

Why.
Well firstly it has the advantage of hindsite.
Secondly past results arent a guarentee of future results.

From there on the discussion will become drawn out and subjective to whom ever your discussing the topic with.
Beyond I would suggest the scope of this thread.

Systems design is both simple and complex,as is discussion.

 

[nizar]

Hi Everyone,

(I wanted to wait till I had the book with me so I could put the page no, but I'm at work so here goes anyways...)

[Caveat: I am a complete novice]

I am reading 'The Way of the Turtle' (Curtis Faith) [I'm about into ch 7] and it shows a graph of the returns using a (standard?) Donchian trend following system from 96-06 based on starting capital of $100K. At the end of the 10 years it is worth 5.5 Mil!!!

Assuming this is a 'standard' system that anyone (with the gumption and minimum intellect) could implement, why isn't everyone doing this now???

The chapter it appears in is explaining that the common affliction in following the system is the times that you need to take large (>50% sometimes) draw downs, and that a lot of people dont stick at it.

I am (very lightly) toying with the idea of lending 100K and doing it myself (possibly using a fund manager), as I think the market has at least another 3-5 good years of growth.

Any thoughts?

Rob

A donchian trend following systems is one that uses channel breakouts.

While 50%p.a. is possible i think you need to know the context and more information before you start toying with anything.

*What instruments were being traded? (probably futures?)
*Was it a long and short system?
*Were positions scaled into? ie. pyramiding
*How about stop losses?
*Money management?

Also, the turtles had something going where they would only take a trade in a certain direction IF the previous signal in that market would've been a loss (or a win??) lol pretty crucial detail but i can't quite remember which one it was.

Yes, another important point was the drawdowns. The turtle system was very hard to trade. Nick Radge has previously said that he traded it in 2001 (?) and he found it very difficult. And he's a real professional. The most difficult part is the exit. Pretty much has to be a real solid downtrend before you exit if you are using LLV of 20 bars.

If you are serious about trading mechanical systems then you need to get yourself some backtesting software so you can design and test your own systems with different money management techniques, and over different markets and/or market conditions, to give you the confidence to begin trading the system and sticking with it during those inevitable periods of drawdown.

Check out my blog if you want alot of good info is on there about this very topic.

Hope that helps.

Nizar.

 

[motorway]

Every trading methodolgy
is a trading range methodology

Every !

Even Buying all time highs
Or selling all time lows..

If You buy a upside breakout from the last twenty bars.

You ( maybe unconsciously) are by Your buying...
defining those last twenty bars as accumulation..

If you are trading on the signal alone
Obviously , You only have a random entry..

The last twenty bars could really be accumulation, Distribution OR NOTHING.

Hence only a % of those breakouts will workout ( make profit).

depending on other conditions
That % will vary between 0% and a 100%..

mechanical traders
tend to say the entry is the least important
That is because all mechanical systems I have seen are unconscious as I have defined it
All mechanical system entries are random with particular filters

eg Buy the upside breakout of the last twenty bars
IS a random entry

because it is not discerning
IF the trading range is accumulation, distribution or Nothing..

Same with any mechanical system

hence the focus on risk and draw downs...

If You trade with Your eyes shut
You need very good risk management systems
because You have a whole set of risks You don't have ( or maybe different risks ) Than with Your eyes open...

For Provocative Discussion
motorway

 

[nizar]

Hi motorway,

Actually at least for my system, the entry seems to be more important than the exit.

Random EXIT with my entry greatly outperforms Random ENTRY with my exit.

 

[It's Snake Pliskin]

Hi motorway,

Actually at least for my system, the entry seems to be more important than the exit.

Random EXIT with my entry greatly outperforms Random ENTRY with my exit.

Where are the linch mobs? Usually people attack when mention of entries being important happens.

Nizar you were looking for data to increase frequency. Entries, no?

 

[Rastan]

Thanks Everyone,

Sooo the trick here is a) what the system parameters were and b) these parameters could be (and probably were) calculated in hindsight, therefore its more a case of 'look what this would have done over the last 10 years IF we knew it 10 years ago'...

Thanks for the link nizar (I've been to your blog previously from reading your other posts . There are a lot of smart people here so I'm just starting out by keeping active with the forum and reading some books. I have been kinda impressed by Peter Spann and am considering using the Freeman Fox thing if its appropriate for me. In about 3 months I plan to get ~ 100K investment loan to start investing with. I assume to go with some fund managers for a year or two and then if I am still keen and more knowledgable either get another loan or some of my own equity and see what I can do for myself.

I also have been toying with doing a Masters of International Finance next year (one to learn more about economics and trading, two to get a qualification in the process to three possibly get a [high paying] job in finance at the end of it - oh and four [if I can afford it] take a one year 'mid life break' and go to uni full time)

Rob

 

[motorway]

Rastan,
What would Jesse have done ? When price broke out above the last twenty bars... What did he do in 1929 ? Was he buying the upside breakouts ?

Niz.... Congratulate You on Your blog and activity in the forum..

If you take every signal in your system ( or they are all seen as good )
Then in the filtered universe that is your signal
You entries and exits are random as I have defined it..

You are not looking at the action preceding the signal
to determine if it is preceded by accumulation, distribution or nothing
You just take the signal all the time.. And such have special need to deal with draw downs ( all traders do to some extent )

In 1929 Jesse determined all the signals were preceded by distribution
all signals upside and downside were all SELL signals

the trading range was not just nothing ( as many are )
but had huge downside implications...


If the range is accumulation buying the breakout wins
If it is nothing or distribution ...draw downs and opportunity cost

as market conditions change the % of mechanical winners will change..
No matter how sophisticated the system ( it is still hunting blind )



motorway

 

[tech/a]

I agree with Motorway/Snake on this.

But there are 2 distinct issues which I think need to be defined.

Nizars approach and mine with regard to systems trading.
boiled down ---all a positive expectancy system is--is
A fixed set of papameters with variables when applied over X period can expect a return of X %.

My discretionary trading and Possibly Snakes and Motorways is one of reading the analysis and applying it within a timeframe to gain a low risk entry which has a high probability of a decient rate of return relative to risk.

 

[nizar]

Snake.

Yes I was looking for intraday data, but not in a super hurry.
Perhaps over the summer.
And yeh -- where are those linch mobs? lol

Motorway.

Yes I agree the understanding and correct application of VSA could help with everybodys trading including mine.

But I don't think there's a way to code this into a mechanical system.
So price action will do me for now.

 

[hotqld]

Hi Everyone,

(I wanted to wait till I had the book with me so I could put the page no, but I'm at work so here goes anyways...)

[Caveat: I am a complete novice]

I am reading 'The Way of the Turtle' (Curtis Faith) [I'm about into ch 7] and it shows a graph of the returns using a (standard?) Donchian trend following system from 96-06 based on starting capital of $100K. At the end of the 10 years it is worth 5.5 Mil!!!

Assuming this is a 'standard' system that anyone (with the gumption and minimum intellect) could implement, why isn't everyone doing this now???

The chapter it appears in is explaining that the common affliction in following the system is the times that you need to take large (>50% sometimes) draw downs, and that a lot of people dont stick at it.

I am (very lightly) toying with the idea of lending 100K and doing it myself (possibly using a fund manager), as I think the market has at least another 3-5 good years of growth.

Any thoughts?

Rob

Hi Rob,
I have been backtesting the turtle systems and have found system 2 the 55 day breakout most profitable to date, with the exits modified to include RSL / FRL, spike reversals, and stop losses set at 3.1 ATR10 from the H or L as well as the Turtle 10 day count back.
Over the last 12 months Forex has tested better than the ASX20, but in the intersts of deversifying I am thinking along the lines of 5 companies in the ASX20, 5 forex pairs, oil and a couple of metals.
Then applying 50% of my portfolio to this system.
To date backtesting is avearageing 65% return.

Any ideas on how to make enties a higher probabilty? Maybe the weekly MA5 direction has to agree with daily? and MACHD simply facing up or down?

Cheers
Tony

 

[peter2]

Rastan: Although these systems boast a positive edge there is one huge problem with using them. This problem is within YOU, or anyone else that tries this strategy. You have correctly noticed the 50% drawdown that is commonly seen. This is huge. How would you feel after borrowing 100K and losing 50K of it? Would you be able to continue taking all the trades? My guess is no because you would be too stressed to continue.

Another aspect of this strategy that is hard to deal with, is the low W%, about 35%. There are more losing trades than winning trades. How would you feel after losing 10 trades is a row and you get 4 more entry signals? Would you be able to pull the trigger?

There are more aspects within this strategy that make it hard to trade, non correlated markets, appropriate position sizing, order mgt, etc.

Edit: Sorry just noticed this thread is dated.

 

[Wysiwyg]

Way of the Turtle

A lot of attention has been afforded to the Turtle Trading System. One thing that can't be mistaken is the fact that there was a strong bull run start (1982 continuation) in July of the year they started trading. Not saying this system can't be reproduced in any market but back testing, although a poor substitute for present testing, proves it is not profitable in sideways or down trending markets.

Before trading ---- Which way is you market trending?

So, the adage "never confuse genius with a bull market" could not be more evident. Clever marketing ploy? Who knows?

 

[Mr J]

Didn't they pyramid? The large fall could be largely explained by having a large open position at the time. They might get hit during large reversals, but a slow down trend (I'm yet to see one!) should be okay.

 

[tech/a]

Before trading ---- Which way is you market trending?

So please tell how you can determine the trend for any market for the next 5 yrs?
You cant!

So, the adage "never confuse genius with a bull market" could not be more evident

Love these idiotic sayings.
If your trading long thats exactly what you want (a bull market) evidently trading genuis is guaged by some as making a profit despite a trend.
Frankly Id rather be a dumb trend trader.(see above)
If you get on a trend it most likely will have little to do with genius and a lot to do with blind luck!

Clever marketing ploy?

Your kidding-----the publics fascination with Turtle Trading has come from their reputation not marketing.

 

[Wysiwyg]

I love the bull baiting and will accommodate.

So please tell how you can determine the trend for any market for the next 5 yrs?
You cant!

Who said they could? <<removed>>

Love these idiotic sayings.

Don't tell me, it's the first line of code in your trading system?

If your trading long thats exactly what you want (a bull market) evidently trading genuis is guaged by some as making a profit despite a trend.
Frankly Id rather be a dumb trend trader.(see above)
If you get on a trend it most likely will have little to do with genius and a lot to do with blind luck!

Yes Yes. Long and trending up. If you get on as they did in a down trend yes, they were damn lucky that trend turned into a strong bull run within months. Did they trade through the '87 crash?

Your kidding-----the publics fascination with Turtle Trading has come from their reputation not marketing.

The trading system worked in a strong up trending market (like our 2003 2007 run) and going back to what I originally posted --- they hit a strong uptrend which produced exceptional results. That doesn't fascinate me.

 

[tech/a]

I love the bull baiting and will accommodate.


Who said they could? You, d.h.

Your first paragraph made it clear.

Don't tell me, it's the first line of code in your trading system?

???

Yes Yes. Long and trending up. If you get on as they did in a down trend yes, they were damn lucky that trend turned into a strong bull run within months. Did they trade through the '87 crash?

So is anyone who trades anything for a prolong period using any sort of system or analysis.87 dont know but their results would be similar to anyone elses had they.

The trading system worked in a strong up trending market (like our 2003 2007 run) and going back to what I originally posted --- they hit a strong uptrend which produced exceptional results. That doesn't fascinate me.

Me neither but I'll tell you what does.

The number of people who CANT turn a profit in a bull market!

 

[Wysiwyg]

Yes you are right they traded commodities and a wide variety. A connection between the bull market and commodities is not appropriate due to the wide variety of commodities they traded which were not correlated to market bullishness.

 

[tech/a]

Yes you are right they traded commodities and a wide variety. A connection between the bull market and commodities is not appropriate due to the wide variety of commodities they traded which were not correlated to market bullishness.

your sarcasm needs work

 

[Wysiwyg]

your sarcasm needs work

I got my first ever official warning in near 3 1/2 years so I doubt I will respond in the future. Love your work.