There are two mathematical principles on which systematic long run successful trading is based:
1) There are hidden almost periodicities on the volumes and volatility of the prices. The most characteristic are , the daily cycle , the monthly cycles and the annual (or quarter) cycle.
2) The duration of the trends is usually a multiple of the characteristic half-periods as above, and they also follow approximately the distribution of the capitalization sizes of enterprises, in other words a Pareto or a Power distribution.
3) The demand-supply functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 3 basic price patterns of spike, trend, and flat channel, emerge.
3) The demand-supply functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 3 basic price patterns of spike, trend, and flat channel, emerge.
If a uniform randomness would rule the markets (efficient markets assumption) , the probability of long duration trends would be much less that what it is observed, and their distribution would be a geometric or exponential, and not Pareto or power. Thus the law of "universal attraction" in enterprise formation makes also the markets non-efficient and more predictable that the academic world believes.
The legendary Turtle trading system of the 80's
(See also the book by M. W. Covel "The Complete TurtleTrader")
At the decade of the 80's it was a legend the systematic profits in the markets and even in the commodities of the turtle trading system. Actually there are the fast or monthly and the slow or seasonal turtle trading systems. The fast turtle trading system opens positions at the break out of the 20 days Dochian channel (in other words at breakouts of the maxima or minima of 20 days bars) when the previous trade was not a win. Notice that the turtle trading system misses a significant entry at the highs of the bars of the spike down waves of the 20 days Dochian channel as B. Williams suggest with his alligator indicator and even A. Elder suggest with his 2-days force index.! This spike may appear as spike in th weekly or nomthly charts although only as a move with high slope in the daily charts. Definition of the start of seasonal trend within a constant tidal-trend by a spike makes the hysteresis of the measurement of a seasonal trend zero! It pyramids or escalates at N/2 price volatility intervals ,(see post 44 for the definition of N by the 20 days ATR, and with position size so that N price change corresponds to 1% change of the funds of the account). As an optimization we may prefer the psychological levels of decimal system , that is by intervals of 100 or 50 points. E.g. in the index NASDAQ and Dow-Jones the 50 points are closest to the N/2 changes while in the index SnP500 10 points are closest to the N/2 changes. From this point of view the turtle-trading is a Grid-trading. A grid-trading like a sieve creates a portfolio of a large number of positions that handles the randomness of the path of prices in the best way. The idea of escalation is of course to build gradually the position with densest reasonable grid, so as to risk always not more than an optimal little , here the 1% and then eliminate this risk with a break-even and proceed escalating as much as the margin and risked stop-loss allows in the funds , while remaining at a quite early position of the total trend-move. Notice that the turtle trading is missing here again that the escalation is done also with less risk at the down waves of the Dochian channel e.g. by the 2-days force index as A. Elder suggests! The initial stop loss but not subsequent trailing is at 2N (thus 2% of the funds) price interval. When a new position is opened , the next day and in general the first next day that it is possible we to move the initial stop loss to a break even. In order to keep total position risk at a minimum, if additional units were added, the stops for earlier units were raised by 1⁄2 N (trailing). This generally meant that all the stops for the entire position would be placed at 2 N from the most recently added unit. However, in cases where later units were placed at larger spacing either because of fast markets causing skid, or because of opening gaps, there would be differences in the stops. The System has an alternate stop strategy that resulted in better profitability, but that was harder to execute because it incurred many more losses, which resulted in a lower win/loss ratio. This strategy was called the Whipsaw. Instead of taking a 2% risk on each trade, the stops were placed at 1⁄2 N for 1⁄2% account risk. If a given Unit was stopped out, the Unit would be re-entered if the market reached the original entry price. If the position does not close by stoploss , an exit rule is that it is closed if prices hit the opposite side of a 10 days Dochian channel. This fast system obviously is tracking and utilizes the monthly cycles. The slow turtle trading system is the same as the fast except as entry rule is used the 6 weeks or 55 days Dochian channel with exit by 20 days Dochian channel.. This system system utilizes seasonal cycles of 55-60 days. The turtle system was utilized mainly in the commodities markets. For the forex market it needs simulation backtest and optimization of the above parameters, from which the next automated system was created.
E.g. There is also the faster "Parker-spiral" variation of the monthly turtle trading system where it is utilize the 10 days dochian channel with exit by the 5 days Dochian channel.
We may notice that the Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the seasonal trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
Alternative better exits can be timely rather than pricely, based on the timing of the half-period moves of the the 5D, 10D and 30D or 6 weeks (See also post 68) for the seasonal turtle trade, or 10 days for the monthly turtle trade, and 5 days for the "Parker-Spiral" turtle trade. We may also combine timely exits with an at least 80% trailing of the floating profits at each position.Notice that in general an exit-trailing rule based on percentage of floating profits for each position e.g. 66%, 80% etc (individual position not group of positions profits) will create a portfolio of different speed of trailing-outs which like a portfolio of time-scales of turtle trading, thus more robust to the risk! Older positions stay more in fluctuations while new positions may close and reopened more often.
Portfolios approach to handle more risk.: The best way to handle the uncertainty that a single index may exhibit, is to implement a portfolio of 33% allocation of the funds for all the three different cycles and time-scales of the turtle trading, namely Parker-Spiral cycles, Monthly cycles, and Seasonal cycles. The fact that all these turtle systems use charts of the daily bars and same parameters of initial stop-loss , and escalation, based on N, helps even better for the portfolio of trading systems.
E.g. There is also the faster "Parker-spiral" variation of the monthly turtle trading system where it is utilize the 10 days dochian channel with exit by the 5 days Dochian channel.
We may notice that the Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and that the escalation is decreasing and not of constant rate, while it is avoided as the seasonal trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel.
Alternative better exits can be timely rather than pricely, based on the timing of the half-period moves of the the 5D, 10D and 30D or 6 weeks (See also post 68) for the seasonal turtle trade, or 10 days for the monthly turtle trade, and 5 days for the "Parker-Spiral" turtle trade. We may also combine timely exits with an at least 80% trailing of the floating profits at each position.Notice that in general an exit-trailing rule based on percentage of floating profits for each position e.g. 66%, 80% etc (individual position not group of positions profits) will create a portfolio of different speed of trailing-outs which like a portfolio of time-scales of turtle trading, thus more robust to the risk! Older positions stay more in fluctuations while new positions may close and reopened more often.
Portfolios approach to handle more risk.: The best way to handle the uncertainty that a single index may exhibit, is to implement a portfolio of 33% allocation of the funds for all the three different cycles and time-scales of the turtle trading, namely Parker-Spiral cycles, Monthly cycles, and Seasonal cycles. The fact that all these turtle systems use charts of the daily bars and same parameters of initial stop-loss , and escalation, based on N, helps even better for the portfolio of trading systems.
Also a portfolio on the 3 indexes Dow-Jones, SnP500, and NASDAQ by 29%, 31% and 40% respectively is a better practice that trading just one index of them, e.g. only NASDAQ.
As the above system of turtle trading (with the extensions based on the A. Elder system, B. Williams system, break-even, decimal price levels of escalation, and cycle based timely exits) is quite solid-complete and deterministic in conduction, probably the only discretion is 1) the percentages of allocation of the above two portfolios of 3 indexes and 3 time scales and 2) the adding or not based on the strength of the first derivative of the seasonal trend, and sign of the second derivative or the percentage of the half-period of the relevant cycle (5D, 10D, 30D).
For the profitability of manual such conduction on daily bars, we may notice that for strong seasonal trends, there may occur a more than doubling of the funds within a season (that is about 25% per month) if the utilized margin-leverage by CFD's is 200 or more while with ordinary margin-leverage of 20 of futures contracts is at least 10 times less, that is about 2.5% per month, as recorded by many turtle-traders since 1980. For non-leveraged trading it is hardly worth the time and effort compared to buy-and-hold investment. \When the constant trend-tide is absent and the market is in a seasonal stationary-continuation pattern, practically the profit for one or more seasons may be zero.
Here we summarize an enhancement and improvement of the turtle trading, based on the above remarks from the systems of A. Elder and B. Williams and my discoveries of random celestial cycles in the markets. We may call it the 3-cycles turtle-grid portfolio system, or in short THE CELESTIAL SIEVE.
The perception and conduction of the system is 4-fold, and it is applied on daily bars.
1) (TIDE) At first we have identified in monthly and weekly charts the perpetual constant trend or tide (usually lasting at least 2 years , principle 1 above in post 68 ) on the 3 indexes Dow-Jones, SnP500, and NASDAQ. For the sake of simplicity in writing we assume it here that it has been identified as upward, good for long positions.
2) (WAVE) Within that, occur seasonal moves with trend, that start after a seasonal continuation flat channel pattern or by a down spike in the weekly or monthly chart so no momentum measurement hysteresis is necessary in detection (B. Williams) Such moves end timely (principle 2 above in post 68 ) (5D, 10D, 30D) or by going to zero of the 1st statistical derivative with earlier sign negative 2nd statistical derivative or by a u terminal spike or by a down spike.
3) (ENTRY, STOP-LOSS , ESCALATION)
We open positions up at the starting spike (B. Williams) or backwards ripples signals by the 2D force indicator (A. Elder) or forwards break-outs of the decimal based N/2 grid (Turtle trading, and fractals by B. Williams) with initial stop loss between 2N, N, or N/2 , when N by the appropriate position size is 1% of the available funds (principle 3 above in post 68) . We do not open positions by the Grid if the 2nd statistical derivative is negative or the 1st statistical derivative close to zero, or timely (principle 2 above in post 68 ) we are more than 80% of the duration of a half-period that is 5D, 10D, 30D etc.
4) (EXIT, TRAIL-OUT). We trail-out either timely (Turtle, B. Williams) e.g. 5D, 10D, 30D or pricely (A. Elder) by X% of the floating profits (which is better as it creates a portfolio of time scales and positions) e.g. 50%, 66%, 80%, 90% which may be changing and increasing as the seasonal trend reaches its maturity etc
or we close timely (principle 2 above post 68) by expiration or maturity of half-periods e.g. 5D, 10D, 30D etc
Turtle Breakout
Turtle Breakout is a fully automated strategy. It is based on the celebrated and half-century old turtle trading system, with which millions have been gained. It is a combination of the classical turrtle trading system with grid-trading and other group-take profit techniques.
It is simmilar to the Spike Hunter, in to that it open trades on spikes. But here the spikes are not sessional as in the Spike hunter but rather seasonal. It detects also the spikes not in a dynamic way by ATR, as in the spike Hunter, but in static way through maxima-minima and support-resistance levels (as in turtle trading).Trailing and pyramiding and group of open positions take profit, are utilized. Essentially of course it is arather volatility-long tarding system, which means that there is the psychological and risk management advantage that we should not fear sudden crisis, unpredictable news based crisis etc. In all such crises it locks profits.
Both Spike Hunter and Turtle Breakouts are focusing and are giving priority to that pattern from all the 4 price patterns (see post 32) with the highest rate of return: Spikes and Spike Breakouts. That is why it is optimal as type of trading.
Unlike Spike Hunter, Venus and Carpe Diem, that apply only to the pair EURUSD, the Turtle Breakout is a ubiquitous system, in the sence that it applies to all pairs, all stocks, commodities, rates , bonds and in general all instruments. The reason for this is that it is based on the turtle trading system which is ubiquitous.
For more on the classical turtle trading see the books
http://www.amazon.com/Complete-TurtleTrader-Investors-Overnight-Millionaires/dp/0061241717/ref=sr_1_1?s=books&ie=UTF8&qid=1346240104&sr=1-1&keywords=turtle+trading
Historically, the turtle-trading has stop loss at 2N , pyramiding at N/2 and trailing at about N. or more exactly at lows either of 10 days or 20 days. But in the present Turtle-Breakouts, we optimized the trailing. The quantity N is defined by the ATR (average true range) indicator of 10 days , and corresponds to about 80% of the daily standard deviation of the prices.
It is simmilar to the Spike Hunter, in to that it open trades on spikes. But here the spikes are not sessional as in the Spike hunter but rather seasonal. It detects also the spikes not in a dynamic way by ATR, as in the spike Hunter, but in static way through maxima-minima and support-resistance levels (as in turtle trading).Trailing and pyramiding and group of open positions take profit, are utilized. Essentially of course it is arather volatility-long tarding system, which means that there is the psychological and risk management advantage that we should not fear sudden crisis, unpredictable news based crisis etc. In all such crises it locks profits.
Both Spike Hunter and Turtle Breakouts are focusing and are giving priority to that pattern from all the 4 price patterns (see post 32) with the highest rate of return: Spikes and Spike Breakouts. That is why it is optimal as type of trading.
Unlike Spike Hunter, Venus and Carpe Diem, that apply only to the pair EURUSD, the Turtle Breakout is a ubiquitous system, in the sence that it applies to all pairs, all stocks, commodities, rates , bonds and in general all instruments. The reason for this is that it is based on the turtle trading system which is ubiquitous.
For more on the classical turtle trading see the books
http://www.amazon.com/Complete-TurtleTrader-Investors-Overnight-Millionaires/dp/0061241717/ref=sr_1_1?s=books&ie=UTF8&qid=1346240104&sr=1-1&keywords=turtle+trading
Historically, the turtle-trading has stop loss at 2N , pyramiding at N/2 and trailing at about N. or more exactly at lows either of 10 days or 20 days. But in the present Turtle-Breakouts, we optimized the trailing. The quantity N is defined by the ATR (average true range) indicator of 10 days , and corresponds to about 80% of the daily standard deviation of the prices.
Turtle Breakout makes on average 0.4 trades per day but when it opens positions usually it is more than one in the same day. There are weeks that no position is opened.
Approximately 94% of the trades are winning, and with a maximum annual draw down less than 10% it has an annual rate of return of about 20%. While at 33% maximum annual draw down about 4,3% monthly rate of return. If the profits are reinvested, and the positions size proportionally increased to the balance, the annual rate of return is even higher. About 80% of the months are profitable.
The income from forex automated trading is on the side of counter-balancing the over-debt that the privatised banking-monetary system creates in society.
The income from forex automated trading is on the side of counter-balancing the over-debt that the privatised banking-monetary system creates in society.
The next table is by a backtest since 2006 till summer of 2012. It was run on 15 minutes bars. The expertadvaisor is set to run only at the opens of the 15 minutes bars.
For this type of expert-advisors, the maximum floating drawdown (during the open positions) is calculated by the code and does not exceed the published Maximum Drawdown which is at the closing or opening of the trades.
Notice that 2% monthly profit means that the annual is (1.02)^12= 1.268 thus about 26%.
We see that the Kelly optimal (see posts 13, 32 ) for a 10K account is at the monimum lot size of 0.16 lots (The system has two leves of lot sizes while running the larger three times more than the minimum lot size)
For a detailed analysis of a backtest since 2008 by MT4i see the link
http://www.mt4i.com/users/turtle_breakout/stats
We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)
Or with the trading results of Chuck Hughes that also about 0.4MDS
here http://www.chuckhughesonline.com/
Or with the trading results of Dan Zanger that are about 0.42MDS here
http://en.wikipedia.org/wiki/Dan_Zanger
