The Missing Piece of the Turtle Trading System, Trading Different Instruments…

As I said in yesterday’s post, there is still a lot that needs to be done in order to have a truly complete implementation of the real turtle trading system. Up until now, I have managed to program Systems No.1 and No.2 accurately which make the main logic of the turtle trading system complete. The system can now be traded to its fullest on a single currency pair with any system you choose to trade. Remember that the creator of the Turtle Trading System stated that you could use any of the two systems, whichever you liked the most.

However there is still a big chunk of the puzzle missing, this chunk is portfolio management. Up until now I had decided not to make a lot of effort to program this since we cannot backtest trading of several currency pairs at the same time, however it seems logical to program this now that the initial parts of the system are ready.

So what is so important about portfolio management ? Well, the turtle traders had some very special rules about the way in which they were supposed to trade separate instruments in order to reduce the risk in which they traded their accounts. For example, they were only allowed to enter a number of positions on very correlated instruments while they could enter more positions if the instruments were loosely correlated. This is a sound strategy since correlated instruments will usually move together and therefore placing too many positions on closely correlated instruments would be like putting a lot of positions with the same “directional bias”. However, placing more positions on breakouts of instruments that are loosely correlated may give an opportunity to diversify risk.

This adds another programming challenge since multiple currencies (in the case of the forex market) need to be monitored at the same time and currently placed trades need to be taken into account in order to allow or veto the opening of new position within the trading account. However by analyzing backtesting results I have seen that several losing positions may have been prevented in the GBP/USD, EUR/USD and USD/JPY simulations if they had been prevented from entering trades by a correlation criteria. This in fact may mean that risk can be reduced greatly by the implementation of the portfolio management strategies used by the turtles.

To implement all this portfolio management I will merge both experts for the No.1 and No.2 systems and create a third expert that is able to trade whichever system the person wants to trade plus calculate and decide whether or not to open positions based on the amount of currently opened positions and the degree of correlation amongst the instruments traded. After this it will be a matter of years before we know if the strategy does reduce risk and increases the profitability of the system but I am certainly going to include this as a part of my “retirement portfolio” as I have already done with the Turtle Trading System No.2 trading the EUR/USD. If you would like to learn more about profitable trading strategies and how you too can trade and develop your own long term profitable automated trading systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

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2 Responses to “The Missing Piece of the Turtle Trading System, Trading Different Instruments…”

  1. Unai says:

    Do you plan to add more information about these "turtle" systems on your book?

    Thanks!

  2. Daniel says:

    Hello Unai,

    Well, I hadn't thought about it but thank you for the suggestions. I will certainly think about that in the near future. Certainly many people would like a section about this EA,

    Best Regards,

    Daniel

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