Does anyone actually understand the rules in Way of the Turtle for ignoring breakouts (p. 259)? They are:
"System 1 Entry - Turtles entered positions when the price exceeded bv a single tick the high or low of the preceding 20 days. If the price exceeded the 20-dav high. then the Turtles would, buy one Unit to initiate a long position in the corresponding commodity. If the price dropped, one tick below the low of the List 20-days, the Turtles would sell one Unit to initiate a short position.
System 1 breakout entry signals would be ignored if the last breakout would have
resulted in a winning trade. NOTE. For the purposes of this test: the last breakout was considered the last breakout in the particular commodity irrespective of whether or not that particular breakout was actually taken, or was skipped because of this rule. This breakout would be considered a Losing breakout if the price subsequent to die date of the breakout moved 2X against the position before a profitable 10-day exit occurred
The direction of the last breakout was irrelevant to this rule. Thus, a losing long breakout or a losing short breakout would enable the subsequent new breakout to be taken as a valid entry, regardless of its direction (long or short).
However., in die event that a System 1 entry breakout was skipped because the previous trade had been a winner, an entry would be made at the 55-day breakout to avoid missing ma]or moves. This 55-day breakout was considered the Failsafe Breakout point"
Unfortunately Curtis Faith doesn't really explain the purpose of ignoring breakouts so that makes it harder to work exactly what he means. My guess is that the idea is to ensure you only trade at the start of a trend, not once it is well-established.
Firstly if you get a 20 day high a previous 20 day high may have occurred the day before. How does the 10-day exit apply to that? You don't know if that trade will be possible in 9 days.
My best guess is to ignore the provision to ignore breakouts if they were less than ten days ago and that what he means is the following:
If you have a new 20 day high look for the last 20 day high or low which fell more than ten days ago. Either it was a high or a low:
(a) A high. If the price fell at some point after that high by 2N, then that was a losing trade and it's OK to trade on this new high. If it didn't fall by as much as 2N then don't trade. Really the high that you have now is just a continuation of the trend that was happening then and you're too late to get onto it. Presumably if there was a new high less than 10 days ago then it's considered to be OK to get onto the trade because it's new enough. After all you can't expect someone to get onto the trend the instant there's a new high so there has to be some time period allowed while the trend is considered to be new trend.
(b) A low. If a new low occurred and now a new high has occurred that's a pretty weak argument for there being a new uptrend commencing - you've got conflicting signals. Only trade if the price came up significantly (at least 2N) so that it's clear there was no real downtrend.
Anyone agree with me or have any better understanding?
"System 1 Entry - Turtles entered positions when the price exceeded bv a single tick the high or low of the preceding 20 days. If the price exceeded the 20-dav high. then the Turtles would, buy one Unit to initiate a long position in the corresponding commodity. If the price dropped, one tick below the low of the List 20-days, the Turtles would sell one Unit to initiate a short position.
System 1 breakout entry signals would be ignored if the last breakout would have
resulted in a winning trade. NOTE. For the purposes of this test: the last breakout was considered the last breakout in the particular commodity irrespective of whether or not that particular breakout was actually taken, or was skipped because of this rule. This breakout would be considered a Losing breakout if the price subsequent to die date of the breakout moved 2X against the position before a profitable 10-day exit occurred
The direction of the last breakout was irrelevant to this rule. Thus, a losing long breakout or a losing short breakout would enable the subsequent new breakout to be taken as a valid entry, regardless of its direction (long or short).
However., in die event that a System 1 entry breakout was skipped because the previous trade had been a winner, an entry would be made at the 55-day breakout to avoid missing ma]or moves. This 55-day breakout was considered the Failsafe Breakout point"
Unfortunately Curtis Faith doesn't really explain the purpose of ignoring breakouts so that makes it harder to work exactly what he means. My guess is that the idea is to ensure you only trade at the start of a trend, not once it is well-established.
Firstly if you get a 20 day high a previous 20 day high may have occurred the day before. How does the 10-day exit apply to that? You don't know if that trade will be possible in 9 days.
My best guess is to ignore the provision to ignore breakouts if they were less than ten days ago and that what he means is the following:
If you have a new 20 day high look for the last 20 day high or low which fell more than ten days ago. Either it was a high or a low:
(a) A high. If the price fell at some point after that high by 2N, then that was a losing trade and it's OK to trade on this new high. If it didn't fall by as much as 2N then don't trade. Really the high that you have now is just a continuation of the trend that was happening then and you're too late to get onto it. Presumably if there was a new high less than 10 days ago then it's considered to be OK to get onto the trade because it's new enough. After all you can't expect someone to get onto the trend the instant there's a new high so there has to be some time period allowed while the trend is considered to be new trend.
(b) A low. If a new low occurred and now a new high has occurred that's a pretty weak argument for there being a new uptrend commencing - you've got conflicting signals. Only trade if the price came up significantly (at least 2N) so that it's clear there was no real downtrend.
Anyone agree with me or have any better understanding?
