🐢 In the 1980s, the 'turtle method' (engl. Turtle Trading) challenged the classic principle of 'buy low, sell high.' This strategy demonstrated that strict adherence to fixed rules can teach even beginners to make money in the stock market.
Let's consider what the legendary turtle strategy is and how it is adapted for the volatile cryptocurrency market.
Who developed the turtle strategy?
The turtle method was created by prominent trader Richard Dennis. Richard was born in 1949 in Chicago and worked as a courier on the Chicago Exchange as a teenager, earning $40 a week — he immediately put all that money into trades.
Understanding the importance of education, Dennis developed his own systematic approach to trading. In 1968, he borrowed $1600 to start and by 1973 had increased his capital to $100,000; at 25, Dennis earned his first million.
His hedge fund Drexel Fund grew rapidly and was one of the most successful in the market. However, it was the turtle experiment that brought Dennis true fame.
In 1983, he made a bet with colleague William Eckhardt to test the idea. Dennis believed that a successful trader could be created — anyone could be taught to trade according to clear rules and discipline, regardless of innate qualities. Eckhardt, on the other hand, was convinced that Dennis succeeded due to unique talent.
To train the turtles, Dennis gathered a group of novices (including bartenders, poker players, even a school student) and named them "turtles" — after a turtle farm in Singapore, where he observed how quickly baby turtles grow. After a two-week training in his methodology, Dennis entrusted each student with a trading account of approximately $1 million to test the strategy in real market conditions.
The results exceeded expectations: the group of turtles turned a total of about $23 million in starting capital into over $200 million in profits (according to other sources, over $175 million in five years).
The experiment proved that a set of rules and discipline can be more important than intuition, and Dennis's methodology has become legendary among traders.
What is the turtle method?
The turtle strategy is a trend-following trading system based on strict mechanical rules for entry, exit, and risk management. The goal is to catch and "ride" significant trends in the market, eliminating emotions from the decision-making process.
Turtle traders follow market momentum: they buy when the price breaks above a certain level (entering the trend upwards), or sell/short when the price drops below a level (entering the trend downwards). Importantly, decisions are made solely according to a predefined algorithm — no "feelings" or improvisation, just reactions to clear signals.
The core of the methodology is the breakout of the price corridor. Dennis used an indicator called the Donchian channel — the price range over the last N days. When the market moves outside of this range, it signals a potential new trend. The strategy included two parallel systems — for shorter and longer trends.
Rules for opening trades according to the turtle method
Entries into positions (opening trades) are carried out based on the crossing of established price levels, including the boundaries of the Donchian channel. Dennis's classic rules provide for two entry systems:
System 1 (short-term): entry when the price breaks through the 20-day maximum (for a long position) or the 20-day minimum (for a short). This breakthrough could give more false signals but allowed for earlier entry into a potential trend.
System 2 (long-term): entry upon breaking through the 55-day price corridor. It was believed that a signal based on a longer period is more reliable, even if it occurs less frequently.
Thus, as soon as the market established a new price maximum or minimum over a specified number of days, the turtles opened a corresponding position in the direction of the breakout (buying on the breakout upwards or shorting on the breakout downwards).
Rules for closing trades and risk management according to the turtle method
Exiting a position in the turtle system occurs upon trend reversal — that is, upon breaking through the opposite edge of the channel.
If a trader entered a long position on breaking through the 20-day maximum, the signal to exit would be a drop in price below a certain X-day minimum. Traditionally, two systems used the following closing rules:
For system 1: exit upon breaking through the 10-day channel in the opposite direction (10-day minimum for long or maximum for short). This allowed for locking in profits or limiting losses when a short trend changed direction.
For system 2: exit upon breaking through the 20-day channel in the opposite direction, that is, a more "inert" rule that gives the trend more space to oscillate and ensures an exit from a long-term movement.
Risk management is a critically important part of the methodology. For this, the volatility indicator ATR (Average True Range) was used — the average true price range over the last days.
ATR allowed assessing how much the market fluctuates and accordingly calculating the position size and stop-loss. Traders set stop orders in advance to limit losses on each trade.
According to the method's rules, the risk on one trade was limited to about 1-2% of the capital. That is, the position size was calculated so that even if a stop-loss triggered, no more than this percentage of the deposit would be lost. Highly volatile assets required smaller positions, while low-volatility ones could allow for larger volumes to keep the risk constant.
The tactic of pyramiding was separately outlined — increasing the position in case of a successful move. If after entry the trend continued, the turtles could add new lots to an already profitable position. Dennis allowed up to 4 additional entries, each after further price movement of 0.5-1 ATR in a favorable direction. This made it possible to maximize the strong trending movement, gradually increasing the position (with each additional entry also accompanied by its own stop order).
Importantly, all rules — for entry, exit, and risk — had to be followed strictly. As participants in the experiment noted, discipline was the decisive factor in the success of the system.
"The main problem for traders is not the strategy. The problem is that they cannot follow simple rules when their money is at stake," noted Curtis Faith, one of the most successful participants in the turtle experiment, who earned about $31 million.
The turtle method in cryptocurrency trading
The cryptocurrency market is known for its high volatility, sharp price fluctuations, and round-the-clock trading without breaks. The turtle strategy continues to be used in this market, although it requires certain adjustments to new conditions:
Adaptation to volatility. Due to larger price fluctuations in cryptocurrencies, traders have to set wider stop-losses and account for the possibility of deeper drawdowns. In particular, practitioners of the method note that it is now advisable to set the stop order further from the entry point — at a distance of 4-6 ATR, as the market has become "tougher" and easily knocks out tight stops. Partial profit-taking is also sometimes used: for example, closing half of the position when the move has gone 8-10 ATR in the profitable direction to lock in part of the profit. All this is designed to adjust to sharper fluctuations and reduce the impact of noise on results.
Around-the-clock market. Unlike traditional exchanges, the crypto market operates 24/7, so a significant price breakthrough can happen at any time of the day. This requires traders to be attentive or use automated algorithms to track signals and execute rules without weekends. Dennis traded on a daily timeframe (D1), but modern traders can experiment with different intervals — from 4-hour charts to daily — to find the optimal balance between signal sensitivity and trend reliability. It's important to have an action plan in case a signal triggers at night or on weekends, as the market does not stop.
Correlation of crypto assets. The original turtle strategy involved diversification — traders traded futures on different commodities, currencies, and indices that were weakly correlated with each other. In the cryptocurrency market, the situation is different: most coins move synchronously relative to market sentiment. Bitcoin sets the tone, and altcoins often mirror its trends. Because of this, simultaneous buy signals across different crypto assets can actually be one and the same bet on market direction. Thus, risks accumulate. This reduces the effectiveness of diversification: if the market enters a downward trend, stop orders will trigger on many positions simultaneously. Therefore, modern "turtles" in crypto often focus on a few major assets (say, BTC, ETH) and closely monitor the overall market trend to avoid going against it.
Experienced traders have made a number of changes to the turtle rules to enhance their effectiveness in the crypto market.
First, many use longer periods for breakouts — for example, entry not at the 55-day but at the 90-day breakout of maximums/minimums. This allows filtering out most small fluctuations and considering only truly significant trends. Accordingly, the exit is shifted from the 20-day to the 45-day channel or another larger interval.
Secondly, as mentioned, traders extend stop-losses (4-6 ATR) and may establish additional trend filters. A popular approach is to add a filter based on the 200-day moving average (EMA 200): for example, opening long positions only if the price is above the 200-day average, indicating a long-term rise. Such a filter helps avoid numerous false breakouts during a sideways market.
Another piece of advice is to trade only in the direction of the higher trend (the principle of "trend is your friend"). In practice, this means that in a long-term bull run, it’s better to take only buy signals, ignoring short signals that more often end in losses during a rising market.
Finally, it is worth noting that without adaptation, the classic turtle rules showed mediocre results on cryptocurrencies — too many false breakouts and volatile movements hinder stable high profits. However, a modified methodology, with less frequent trades and better accounting for market specifics, can be more effective.
The main point is that the turtle strategy has confirmed its viability: even in the world of digital assets, its principles of trend following and risk management remain relevant.
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