Forex Trading

Turtle Trading Explained

One popular trading style that keeps on coming back from the dead with the regularity of the baddie in a horror flick is ‘Turtle Trading’. A swing trading style, the Turtle Trading system was devised by legendary trader Richard Dennis in order to show that great traders weren’t born, they could be ‘grown’, just like turtles in a Far East Turtle farm.

There are many websites offering courses in how to turtle trade, sometimes for thousands of dollars, some of them even run by people who are allegedly ‘ex-turtles’. This is frankly hilarious – the entire turtle system is available for free as a PDF download from www.originalTurtles.org and we here at www.traders101.com STRONGLY advise you to grab it and read it before you lash out any cash on a ‘course’. As far as we know, there is NOTHING to be learned from these expensive ‘courses’ that you can’t find for free in the excellent download, written by real Turtle traders who were trained by the great man himself.

There are also other systems just as good as turtle trading, such as the excellent dowstomper from free insight.net clone and dowstomper.com that don’t cost a cent. In order to help you decide whether turtle trading is for you, here’s a quick overview. First off, in 1983 when Dennis tried the scheme, it worked. It worked BIG TIME in fact, producing an AVERAGE 80% compounded over the four years of the trial. The turtle trading rules themselves were simple – the secret was the ability to STICK TO THE RULES!. This made it a mechanical trading system par excellence, and a good mechanical trading system, as you should know, is the key to consistency.

The turtle trading rules specified in detail what markets to trade, how to size a position properly, when to enter and exit, how to use stops to exit a losing position, how to exit a winning position, and some ancillary tactics on the buying and selling of large positions without alerting the market.

What to trade. The turtles traded futures (commodities, as they were known at the time). They traded all liquid futures markets except grains and meats. That included T Bonds, coffee, sugar, cotton, currencies, precious metals and oils. An individual trader could decide what he wanted to trade.

Position Sizing. The turtles liked to normalize their positions based on the underlying dollar volatility of the market – a common trick nowadays, but advanced for the 80s. This made the effective risk across markets similar, and allowed them to trade many markets in a similar way. Key to this is ‘N’ – the underlying volatility of a market. To calculate N, find the 20 day exponential MA of the ATR (true range). There’s a lot on Moving Averages over at www.traders101.com if you need a refresher. Having found N, the ‘Dollar Volatility’ is N x Dollars Per point. The S&P, for example, moves 50 bucks a point on the emini contract.

To create a turtle trading ‘unit’, you work out 1% of your equity, and divide by the dollar volatility. As you might have guessed, its a low risk strategy, as you need to be able to withstand extended drawdown periods to ’stay in the game’. The ‘unit’ tells you how many contracts to trade, and still stay relatively safe. To further de-risk the system, each market had limits. No more than 4 units could be traded in a single market, for example.

After losing trades, turtles would reduce the effective equity, in order to scale back risk even further. Expand when you are winning, pull back when you are losing. But how did they know when to trade???

Entries. There were 2 breakout systems used by the turtles. The first used a 20 day breakout. The second used a 55 day breakout. A 20 day breakout is where the high or low exceeds the high or low of the preceding 20 days. They took the trade when it was offered – i.e. this was not an ‘end of day’ system. If an opening gap caused the breakout, the turtles would still take the trade, as the idea was they would be in it for some days, and a couple of points at the start didn’t matter. Personally, (and everyone at www.traders101.com agrees!) we never chase the gap. Obviously, the turtles traded both long and short. There were a couple of extra rules, such as ignoring a signal if the LAST breakout (whether the turtle took it or not) would have led to a winner. The 55 day breakout would then become the initiation point as a fail-safe on major moves. Full rules, are of course, available in the free download.

Stops. Turtle traders ALWAYS used stops. They defined the exit point BEFORE initiating a trade. Their positions could be so large that in order NOT to alert the market, ‘mental’ stops were used. No trade could carry more than 2% risk. This means a stop would be 2 x N away from the position.

Exits. Most breakouts do NOT result in trends. Most turtle trades, therefore, ended in losses. The winners therefore had to be BIG to cover the losers, and they were. The first exit rule was to exit on a 10 day low or high against your position. The second method was an exit against a 20 day high or low. Simple, yes. But at the time it worked. The HARD part for most traders is hanging on grimly as profits evaporate over 10 or 20 days! The cultivation of THAT discipline was the real secret!

Does it still work? Sometimes. The market is well aware of the legions of would-be turtles avidly watching for 20 day breakouts. ‘Turtle Soup’ is a common maneuver whereby a big player ‘fakes’ a move up or down to trigger the turtle signals, then reverses it, stopping them out. Mean, ain’t it? Bottom line, if you want to turtle trade, you need to adapt the rules for your own personal style and hide your ‘footprint’ in the market.

About the Author

Trader Jack writes stock trading artices for www.traders101.com the free site helping traders get into profit fast
 
Turtle Trading Explained by Trader Jack

• Comments Off

Straddle Strategies in Option Trading

The straddle strategy is an option strategy that’s based on buying both a call and put of a stock. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.

Now why would we want to buy both a Call and a Put? Calls are for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?

In an ideal world, we would like to be able to clearly predict the direction of a stock. However, in the real world, it’s quite difficult. On the other hand, it’s relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). One method of predicting volatility is by using the Technical Indicator called Bollinger Bands.

For example, you know that ABC’s annual report is coming out this week, but do not know whether they will exceed expectations or not. You could assume that the stock price will be quite volatile, but since you don’t know the news in the annual report, you wouldn’t have a clue which direction the stock will move. In cases like this, a Straddle strategy would be good to adopt.

If the price of the stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. If the price plummets, your Put will be way In-The-Money, and your Call will be worthless. This is safer than buying either just a Call or just a Put. If you just bought a one-sided option, and the price goes the wrong way, you’re looking at possibly losing your entire premium investment. In the case of Straddles, you will be safe either way, though you are spending more initially since you have to pay the premiums of both the Call and the Put.

Let’s look at a numerical example:

For stock XYZ, let’s imagine the share price is now sitting at $63. There is news that a legal suit against XYZ will conclude tomorrow. No matter the result of the suit, you know that there will be volatility. If they win, the price will jump. If they lose, the price will plummet.

So we decide to initiate a Straddle strategy on the XYZ stock. We decide to buy a $65 Call and a $65 Put on XYZ, $65 being the closest strike price to the current stock price of $63. The premium for the Call (which is $2 Out-Of-The-Money) is $0.75, and the premium for the Put (which is $2 In-The-Money) is $3.00. So our total initial investment is the sum of both premiums, which is $3.75.

Fast forward 2 days. XYZ won the legal battle! Investors are more confident of the stock and the price jumps to $72. The $65 Call is now $7 In-The-Money and its premium is now $8.00. The $65 Put is now Way-Out-Of-The-Money and its premium is now $0.25. If we close out both positions and sell both options, we would cash in $8.00 + $0.25 = $8.25. That’s a profit of $4.50 on our initial $3.75 investment!

Of course, we could have just bought a basic Call option and earned a greater profit. But we didn’t know which direction the stock price would go. If XYZ lost the legal battle, the price could have dropped $10, making our Call worthless and causing us to lose our entire investment. A Straddle strategy is more conservative and will profit whether the stock goes up or down.

If Straddles are so good, why doesn’t everybody use them for every investment?

It fails when the stock price doesn’t move. If the price of the stock hovers around the initial price, both the Call and the Put will not be that much In-The-Money. Furthermore, the closer it is to the expiration date, the cheaper premiums are. Option premiums have a Time Value associated with them. So an option expiring this month will have a cheaper premium than an option with the same strike price expiring next year.

So in the case where the stock price doesn’t move, the premiums of both the Call and Put will slowly decay, and we could end up losing a large percentage of our investment. The bottom line is: for a Straddle strategy to be profitable, there has to be volatility, and a marked movement in the stock price.

A more advanced investor can tweak Straddles to create many variations. They can buy different amounts of Calls and Puts with different Strike Prices or Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance.

If you want to read more information on straddles and other option strategies, visit http://www.option-trading-guide.com/options_guide.html

About the Author

Steven is the webmaster of http://www.option-trading-guide.com If you would like to learn more about Option Trading or Technical Analysis, do visit for various strategies and resources to help your stock market investments.

Straddle Strategies in Option Trading by Steven T. Ng

• Comments Off

The Loan Process

Your heart pounds as you don your carefully chosen business attire, hands slightly shaking as they collect your papers, and the realization has finally hit you- the day has arrived. You’re going to meet your maker, or rather, the maker of loans otherwise known as your lender. The hours of meticulous work that has gone into document preparation and researching the loan process will be your armor and first line of defense in this loan battle. The question is, “Are you prepared for what will go on in the actual meeting with the lender?” After reading this article the answer will be a resounding, “Yes”.

The first thing to remember comes from one of the wisest figures in history, your mother. Be on time and dress to impress, after all first impressions are lasting and done almost immediately. Studies have shown that within three seconds of a first encounter, you have already been evaluated, categorized, and labeled. This is inescapable as it is an innate part of human behavior, so you must use this fact to your advantage. Make sure you are impeccably groomed, punctual, and watch your body language. When asked a question phrased in a negative manner, respond conversely with a positive take on that particular area. A word of wisdom…when doing this do not give them the impression of a Pollyanna without being able to support your positive claim. Be an informed Pollyanna!

Secondly, be organized. After all the work you have put into preparing the documentation for this meeting, make sure you have taken the extra time to properly organize your materials. The research you’ve done for your presentation will not be helpful, if you are so disorganized that you can’t find it at the correct moment. If a lender sees you fumbling through a mess of papers while simultaneously attempting to stutter out a sentence, chances are you are not going to make a favorable impression. Make sure you have practiced the presentation of your materials, timing it to be around 20 minutes, and utilize the wondrous thing known as an outline. It will be a wonderful tool for organizing and memorizing your key points. Keeping it to 20 minutes will also allow proper time for Q&A.

After the meeting, follow up can be key. Take a moment to jot a quick thank you letter or make a phone call. This demonstrates more than just courtesy, it shows that you are someone who follows through and keeps you at the forefront of the lender’s mind. If applicable, it could also be in your best interests to invite the lender to your business location and give a small tour. Having a visual can help create a clearer picture of you and your business to the lender.

The amount of time in reaching a decision can vary, but you can help speed things along. By making an informative presentation and creating a thorough business plan, the lender will have fewer questions unanswered. In cases where there are holes in the information, the lender will create a written list that will be sent to you for completion. This process is known as the “paper snowstorm”, which is as appealing as it sounds. The stronger your loan application package, the less likely you will have to weather such a storm.

Once you have all the information to the lender, it will now go to the approval stage. The timing of this will vary by size and nature of the loan, and also by individual lending institutions. Some may have the authority in that office, while others will need to take it to committee. Ask your lender how the loan approval process will work for your loan.

In the event that you receive the loan, congratulations are in order, so pat yourself on the back. Closing will then follow, which will usually happen between days 25 and 45, and will include the lender fulfilling the loan with a cashier’s check, draft, direct transfer, or wire. Overall, the typical length of the loan process can take up to 45-60 days.

Now that you have the loan, what do you do? You need to get back to work and be prepared for the next step in the process, which is going to include the lender keeping a keen eye on you and your business, as well as the collateral that you pledged to get the loan. This is a simple fact of loan life; it cannot be avoided at this juncture. The best steps to take are the obvious and include such things as making regularly scheduled payments, providing quarterly results, and generally keeping the lender abreast of matters involving the wellbeing of the business. Communication is going to be your best offense and defense in this situation. Luckily, you now have your loan and are on the path towards making your vision a reality!

To find out more information about your credit score and what you can do to improve you score visit visit Dyer Consulting Group.

About the Author

Aaron Dyer is President of Dyer Consulting Group, a small business consulting firm that advises business owners on ways to grow their revenues and increase profitability through better strategic planning and financial management. For more information, and also to sign up for Aaron’s future articles, visit www.DyerConsultingGroup.com

The Loan Process by Aaron Dyer

• Comments Off