Money management/portfolio construction along the lines of turtle rules

[awoodj]

Money management and Portfolio construction in FX along the lines of the turtle rules

Hi all

I am currently looking at the best way to develop a mechanical trading system based on the type of trend following rules used by the Turtle trading system. I have a feeling the entry and exit rules may be outdated but the volatility based position sizing seems like it was almost the key to the system working. I am interested in opinions as the whether anyone thinks that FX alone can give the spread of possible trades required to find some long term trending winners to offset the larger number of loosers this type of system incurrs.

The original turtle program used a range of futures/commodities including FX futures but also stock indices, Gold, Soya etc etc.

The rules they used are at www.originalturtles.org and are worth a read for anyone looking at constructing a trading system. The thoughts i am having around FX is that using a mini account it should be possible to trade the systems initially without requiring the 250k plus account size necessary otherwise.

Another thought i have had is that if you use CFD's through Deal4free etc then you can gain access to some commodities, indices and FX in one account. This would all require a trading platform to give signals then you could enter the orders into their trading software with stops etc.

For info i am also aware that with deal4free and others the whole system could be screwed by the possibility of them taking out stops etc as they can manipulate prices easier than in the futures market.

Anyway looking for input from anyone who has spent a bit of time thinking about similar and would also possibly be interested in any joint venture to research this out further etc.

Considering Wealth Lab, Tradestation and Metastock as possible testing platforms any opinions on the suitability of these also intersted in comments

Al

 

[jmreeve]

awoodj-

I structure my trading along these lines. Volatility based position sizing can work very effectively if it is applied correctly however I have found it is better with intermediate term trend following systems (average trade length 20-30 days)

To get trend following to work in the way the turtles used it requires trading a lot of uncorellated markets and scaling into each one. This is difficult to do with a small account even using spread bets of CFDs to allow more control over position size.

An alternative is to use a mix of different trading systems. For example, you might have some core long term trend following systems, one or two counter trend systems and a few short term or day trading systems. This adds useful diversity to the portfolio in a way that is less dependent on trading a lot of markets and using money management. The short term systems can be designed to have high %win to balance the 40% win rate of typical long term trend following.

I use Tradestation and Rina systems portfolio Evaluator to do this.

 

[darrenf]

I am pretty sure that if long term trend following systems are going to work, they are going to work best on FX markets as they have some pretty impressive, smooth trends which can last for months at a time. I would steer clear of stock indices personally.

I have looked at trading long term moves in fx pretty closely, and I am convinced it would be profitable over the long term. For me personally, I settled/ evolved in to trading shorter term swings, in the direction of the main trend. This gives a higher number of trades and produces a more consistent result for me. (most months are profitable, with low drawdowns)

I do use volatility based stops, (a multiple of ATR)the idea for which, I suppose originally came from the turtle system and the "spread trading secrets" manual which I bought for about £100 after recommendations from t2w members. If you want an off the page system for long term trading, using volatility based entry/ exit, this is one of the few manuals I would actually recommend. I can't say it is definately profitable as I have not traded it live but it is certainly logical and an excellent starting point. (There are a couple of threads on here somewhere if you do a search and it was written by Aussietrader who is a t2w member if you want to PM him about it). I also think it is something that could be programmed/ automated as the entries/ exits are mechanical.

As for stops being run by df4 and others, I would have to say dont worry about it, particularly if you are trading long term. Your stops will be 100 points plus and not really in reach of any short term "stop running" which goes on in any trading instrument and can't really be avoided. It is only really to be of concern if you are trading short term imo, ie less than hourly bars and if your stops are in really obvious places. I use d4f spreadbet for fx trading and they are no worse/ better than anyone else for this (I can only comment re FX. I hear sb's generally can be terrible on instruments like stocks/ indices during market closed hours).

If you are consdering using df4, I would look at spreadbet rather than cfd's. The spreads are identical (for FX at least) and any profits are tax free. (Although debatable if your trading profits are your sole income).

Hope this gives you something to go on.

Cheers for now

Darren

PS. I am pretty sure you could trade this type of system with about 15k without too much trouble re position sizing etc if using SB's, most of which are min £1 per point.

 

[awoodj]

Thanks for the info guys

Thanks for taking the time to write such detailed replies, i am going to research this further and will see how i get on.

All starts to get to be quite expensive entry though as it seems like tradestation is probably the way to go for the platform as there are so many pre-written systems etc to work off of. As i am new to it i would need to get stuck into it to justify the $99 per month fees whilst i learnt.

PS Does anyone know if they offer dummy trading to test against before real trading? (I don't mean backtesting i mean trading a dummy account to check it all works as planned)

 

[awoodj]

A bit of further research

Just in case anyone is thinking along the same lines after some futher research it would appear Wealth-Lab seems like the best option for testing as it can do portfolio based stuff as part of the package and the add on for Tradestation to do the same is $995 (WL is only $600 all in) could be the stuff added to TS is better but not that sure from reading about both.

Also looking at IB rather than Tradestation as realtime data source and Broker as it has lower costs and can use Sierra charts along side it (although WL itself might even be ok for the charting i want)

Down side is that IB don't have backfill of data, EOD is easy enough come by but i guess it would mean leaving PC on for a while to catch a significant amount of Intraday stuff for testing etc. Anyone got any better way i know there are a few add-ons that can do this but are they any good.

Anyway thats my few more thoughts in case anyone else finds them useful.