1 Who developed the turtle strategy?
The turtle method, which is opposite to the classic 'buy low — sell high', was invented by American broker Richard Dennis in the 1980s. With this strategy, he was able to teach 20 students, most of whom had no trading experience, to earn on the exchange.
Richard Dennis was born in Chicago in 1949. He became one of the few traders who built his capital almost from scratch. As a school student, he worked as a messenger at the CME. Earning $40 a week, Dennis spent all his money trying to make money from trading — until he realized that he needed to learn this.
When the future 'king of futures' decided he had thought through his strategy enough, he borrowed $1,600 from relatives. His place on the exchange cost him $1,200, and he used the remaining $400 to trade small contracts. In 1968-1969, while Dennis was not yet 21, his father worked on the exchange in his place, and Dennis gave him orders through gestures. For most traders, the first year is unsuccessful, but Richard was lucky. Bets on corn positions were profitable until the 1970 crop failure.
In 1970, his working capital was $3,000, and by 1973 it was already $100,000. At the age of 25, Richard Dennis earned his first million.
The fund he founded, Drexel Fund, was considered one of the most stable and rapidly growing for many years. After ten years, thanks to this enterprise, Dennis's profit reached ~$200 million. But it was the story with the 'turtles' that made him truly famous.
2 What is the turtle method?
Dennis called the students he recruited to teach the experimental method 'turtles'.
In 1983, he made a $1 bet with his college friend William Eckhardt. The latter was convinced that most people would not be able to make money on the exchange even if they were taught because they lack intuition. Dennis, however, believed that anyone could become a successful trader regardless of personal qualities; it was only important to meet four conditions:
strict adherence to the rules;
internal discipline;
desire to get rich;
readiness to work.
At that time, Dennis invested in a turtle farm in Florida. He came up with the name for the training group when he observed turtle hatchlings crawling in different directions from one pit towards the water.
Dennis offered candidates relocation to Chicago and a small salary. During the selection process, candidates had to pass intelligence tests and interviews regarding their attitude towards risk. Out of several thousand applicants, a third already had trading experience, another third had basic knowledge, while the rest had no idea about the exchange. In total, Dennis took 23 people as students. In 1983 he formed the first group, and in 1984 — the second.
The first group consisted of two novice traders, a financial consultant, two card players, an accountant, an actor, a security guard, a school graduate, a designer, as well as a female mathematician and one acquaintance of Dennis. Each student's trading account was $1 million. 85% of the profits were directed to Dennis, while 15% remained with the 'turtles'. They could only trade with his money and had to maintain confidentiality.
Among the students of the second group, Paul Rabar, who ranked second in income, and the oldest participant, 37-year-old Earl Kiefer, stood out. By that time, Kiefer had been both a military pilot and even a co-founder of the London International Financial Futures Exchange. For the students of the second group, Dennis changed the rules: now the volumes of the starting wallets differed from each other and were not disclosed. It was claimed that Dennis could allocate $50,000 to some and ~$600,000 to others.
The first year of independent work for the students did not bring significant profits. But by 1985 they began to show good results. Three participants were expelled, while the remaining twenty 'turtles' achieved an average annual return of about 100%. The experiment lasted five years, and its result was phenomenal: the invested $23 million brought in about $175 million. Finally, in 1992, the turtle method was declassified.
3 Fundamental principles of the turtle strategy
Richard Dennis taught the 'turtles' not to pay attention to news and not to read financial publications, as was customary on Wall Street. The essence of the method is to work with price, liquidity, and the trend of any asset. The trading system is universal, and students successfully applied it in all markets, without thinking about the nature of the commodity.
Dennis did not invent trend trading; he was inspired by the work of technical analysis pioneer Richard Donchian. In the 1970s, he was the first to propose the concept of trend following and developed an indicator — the Donchian channel. It consists of three lines: upper, middle, and lower, which represents a 20-day moving average. The price corridor helps traders identify and visualize price breakouts, volatility, and trend reversals.
The turtle strategy invented by Dennis is based on long-term trends: it allows profits to accumulate while losing trades are closed immediately upon signal. Typically, several large successful trades generate enough annual profit to compensate for numerous small losing operations. The main indicator of the method is the current price.
Fundamental rules of the turtle method:
a maximally simple system with a minimum of indicators is used;
the future direction of the trend does not matter, it is necessary to earn now;
the focus is on technical analysis, while fundamental analysis is completely excluded;
the task is to capture most of the trend without exiting the position too early;
an aggressive method of using profits is employed — 'pyramid building'. When a trade starts to be profitable, one should increase the existing position while the trend holds. Adding should be slower than capital growth, moving the stop order towards the position;
one cannot be in a position too long. It is necessary to exit on time, avoiding inflated and deflated prices;
When determining the position size, the volatility level of the asset is taken into account;
bypassing the rules is unacceptable.
4 Rules for opening trades by the turtle method
According to the turtle strategy, entry and exit from operations occur according to clear rules. Entry into a trade can be either short-term or long-term. Regardless of which is chosen, the purchase is made upon crossing the Donchian channel.
A short-term entry is signaled by the price crossing the 20-day level according to the indicator settings. If the breakout occurred from bottom to top — buy, if from top to bottom — sell.
An important nuance is that the trader must check the result of the trade based on the previous signal. If the completed trade was successful, the current signal is ignored. In such a case, the position opening is postponed — at the crossing of the higher, 55-day channel. It does not matter whether the trader entered according to the previous signal or not; what matters is the very fact of a potential result.
If the previous signal resulted in financial losses, the current one must be used without fail. Deviating from this rule is not allowed.
In a long-term tactic, a breakout above the 55-day price corridor is used. Unlike short-term entry, in this case, it does not matter whether the previous trade was losing or profitable: the position must be opened regardless.
The 'turtles' were taught to use one unit for each trade made under the aforementioned rules. This unit effectively corresponds to 2% of the trading deposit. If your 'deposit' is $1,000, you can allocate no more than $20 for each trade according to the method.
It is necessary to consider the asset category. If positions are opened on two assets from the same industry, your risks are elevated. This system achieved the necessary level of risk management and allowed participation in a large number of trades simultaneously.
5 Rules for closing trades and risk management by the turtle method
Exiting when implementing a short-term option occurs when the dynamics turn towards the price corridor of the lower period, that is, when crossing the 10-day Donchian channel. Closing a long-term trade — at the breakout of the opposite boundary of the range with a period of 20.
Dennis required the 'turtles' to enter the market randomly and manage trades. Together with Eckhardt, they worked on how students perceive money in trades with percentage ratios or absolute values. They sought to minimize the influence of emotions on decision-making and to make the reaction to losses neutral. In the turtle method, losses can occur one after another, for instance, in seven out of ten trades, while the remaining three cover the losses with a margin.
An important part of the 'king of futures' strategy is risk management. It begins with measuring the daily volatility of the markets. This indicator has been given the conditional name N, which is also ATR. The 'turtles' were taught to take the maximum values of the following parameters of any market to derive the N indicator:
the distance from today's maximum to today's minimum;
the distance from yesterday's close to today's maximum;
the distance from yesterday's close to today's minimum.
If the result obtained was negative, it was brought to an absolute value.
For example, if a breakout occurred in corn futures at an assumed price of $250, the 'turtles' determined the value of N for the stop. If N equals $7, then 2N is $14. The stop-loss signal was given at a price $14 below the entry price. If bought at $250, it should be sold at $236. No guessing, just following the rules.
If earlier everything had to be calculated manually, now it is enough to add the ATR indicator to the chart in TradingView. The essence is simple: the higher the readings, the greater the likelihood of a trend change.
6 The turtle method in cryptocurrency trading
Although the strategies are over 40 years old, they continue to be applied in the cryptocurrency market today. Given the high volatility and 24/7 trading, some tools need adaptation. The following adjustments can be made to the method:
Maximum position sizes are no more than 1-2% of the current deposit amount, additional orders — no more than 0.25%. For traders with a small deposit, such a cautious methodology may not be suitable due to the small final profit. However, it is a long-term strategy and allows opening several positions across different instruments.
It is necessary to monitor the behavior of the working asset. Any strategies should ensure statistical superiority of profits over losses. If the trend ends, a more effective solution would be to look for entry points in another trading instrument.
Adjustment for the increased volatility of cryptocurrencies. An effective behavior option would be to buy/sell only after breaking through the 90-day price threshold. A signal for closing would be the crossing of the 45-day level.
Increased stop-loss. You can start with 5N (5ATR) instead of the standard two. A 'big stop' will reduce losses from false breakouts and help avoid premature exits.
Sequential profit fixation. When the target level of 8-10ATR is reached, closing half of the position will free up capital for the next trade. Fragmented exits help avoid some drawdowns.
Additional signal filtering. Many traders adjust strategies for their convenience and add trend filters like MACD and RSI indicators.
Diversification. Often cryptocurrencies from the same category repeat price movements. If the risk is spread across different crypto sectors, a loss on one coin can be compensated by a profit on another.
Suppose on January 17, 2025, the price of Bitcoin breaks through the 90-day high at around ~$105,700. Entry according to the strategy occurs at the breakout point. The stop-loss is set according to 5ATR at $7,000 below the breakout level — ~$98,700. If the trend continues, the trader holds the position until a reverse signal appears — touching the lower red line of the 45-day Donchian.
The turtle strategy is especially useful for traders who are ready to follow strict rules and are not afraid of long-term position holding. In the crypto market, it can serve as a basis for creating more complex trading systems.
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