What are the Turtle trading rules?

The core: buy a close above the 20-day high, sell short a close below the 20-day low, put the stop 2 ATR away, and exit on the opposite 10-day breakout. Position size is set so one ATR equals a small fixed share of the account.

What is a Donchian channel?

Lines at the highest high and the lowest low of the last N candles. A close outside the channel is a new N-day high or low.

Does Turtle trading still work?

The idea, following trends with mechanical breakouts, has a long research record. The exact 1980s rules are reported to have weakened since they became public, and they need many markets to spread risk.

Why is the win rate so low?

Most breakouts fail and are closed at small losses. The strategy makes its money on the few that turn into long trends, which is why the exits are slow and there is no target.

Turtle breakout (Donchian channel) strategy: rules and example

The idea

In 1983 the trader Richard Dennis bet a colleague that trading could be taught, recruited a group of beginners he called the Turtles and gave them a complete rule book. At its heart was a channel breakout: buy when price makes a new 20-day high, sell short at a new 20-day low, and get out when price makes a smaller opposite breakout.

The channel is called a Donchian channel after Richard Donchian, who used it decades earlier. It needs no indicator at all, only the highest high and lowest low of recent days, which makes it one of the most mechanical strategies in this library.

Watch it play out

Illustration, not a real chart.

Step by step

The rules

Setup

Plot the highest high and lowest low of the last 20 days, and the lowest low and highest high of the last 10.

Entry

Buy on a close above the previous 20-day high.
Sell short on a close below the previous 20-day low.

Stop-loss

2 ATR (average true range, 20 days) from the entry, as in the original rules.

Target

No fixed target. Exit a long on a close below the 10-day low, a short on a close above the 10-day high.

Filters that help

The Turtles skipped a 20-day breakout if the previous one would have been a winner, and used a slower 55-day breakout as a backup.
Size each position so that one ATR is a fixed small share of the account.

Why it can work

A new 20-day high means price has moved beyond everything it did for a month. Big trends always start with a series of new highs, so a rule that buys every new high will be on board for each big trend, at the cost of buying many breakouts that go nowhere.

The shorter 10-day exit lets winners run for as long as the trend keeps making progress and cuts the many small failures quickly.

Worked example

Gold futures close above their 20-day high. The 20-day ATR is 30 dollars, so the stop goes 60 dollars below the entry: 600 dollars of risk on one Micro Gold contract (10 ounces), 6,000 on a full contract.

Weeks later price closes below its 10-day low and the trade is closed, wherever that is. There is no target: the exit line follows the trend up.

When it works, when it fails

Works best

In markets that trend for months: commodities in supply shocks, currencies moving on interest rate cycles, crypto in its big runs. A few large trends pay for many small losses.

Struggles

In choppy years, when breakouts reverse again and again. Trend followers can lose for long stretches, sometimes years, and the strategy only works for those who keep taking the next breakout.

Common mistakes

Skipping breakouts after a few losses, then missing the one big trend of the year.
Using it on one market only: the original approach spread risk over many unrelated markets.
Taking a target early: the method depends on letting rare large winners run.

Variations

System 2: The Turtles' slower version: 55-day breakouts with a 20-day exit, fewer trades and longer holds.

What the evidence says

Tested, mixed

Public tests disagree, or the edge has faded over time.

Trend following, the family the Turtle rules belong to, has a long record in research: a study going back to 1880 found that following trends across 67 markets made money in every decade, with little correlation to stocks and bonds.

The original Turtle rules themselves are widely reported to have struggled after the 1990s once they became well known, and their returns depend on trading many markets with careful sizing. Hence mixed: the family is well researched, the specific rules have faded.

Questions

What are the Turtle trading rules?: The core: buy a close above the 20-day high, sell short a close below the 20-day low, put the stop 2 ATR away, and exit on the opposite 10-day breakout. Position size is set so one ATR equals a small fixed share of the account.
What is a Donchian channel?: Lines at the highest high and the lowest low of the last N candles. A close outside the channel is a new N-day high or low.
Does Turtle trading still work?: The idea, following trends with mechanical breakouts, has a long research record. The exact 1980s rules are reported to have weakened since they became public, and they need many markets to spread risk.
Why is the win rate so low?: Most breakouts fail and are closed at small losses. The strategy makes its money on the few that turn into long trends, which is why the exits are slow and there is no target.