📚The Definitive Guide to Expectancy and Position Sizing – Curtis Faith
📚Against the Gods – Peter Bernstein
📚Irrational Exuberance – Rober Shiller
📚Beyond Greed and Fear – Hersh Shefrin
📚New Concepts in the Technical Trading Systems – J. Welles Wilder
📚Trade Your Way to Financial Freedom – Van Tharp
📚Donchian channels – Richard Donchian
📚When Genius Failed – Roger Lowenstein
📚Technical Traders Guide to Computer Analysis of the Futures Markets – Check LeBeau and David Lucas
📚Reminiscences of a Stock Operator – Edwin Lefèvre
🚶Van Tharp
🚶Brett Steenbarger
🚶Ari Kiev
🚶Mark Douglas
📚Professional Stock Trading – Conway, Mark R, Aaron N. Behle
📚Trading for a Living – Alexander Elder
📚Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis – Richard L. Weissman

Curtis says in very concise terms that it’s not about the trading system; it’s about the trader’s ability to execute the trading system.

The difficulty in trading lies not in the concepts but in the application.

💭”Human emotion is both the source of opportunity in trading and the greatest challenge. Master it and you will succeed.”

Winning traders make money by exploiting the consistently irrational behavior patterns of other traders.

The Turtle Way works and continues to work because it is based on the market movements that result from the systematic and repeated irrationality that is embedded in every person.

Trend following generates excellent returns and has done so consistently for as long as anyone has traded futures contracts, but it is not an easy strategy for most people to follow for several reasons.
∙First, large trends occur fairly infrequently; this means that trend-following strategies generally have a much higher percentage of losing trades than winning trades. It may be typical for a trend-following system to have 65 or 70 percent losing trades.
∙Second, in addition to losing money when there are no trends, trend-following systems lose when trends reverse. A common expression that the Turtles and other trend followers use is “The trend is your friend until the end when it bends.” The bends at the end can be brutal both on your account and on your psyche. Traders refer to these losing periods as draw downs. Draw downs usually begin after a trendy period ends, but they can continue for months when markets are choppy, and the trend-following strategies continue to generate losing trades.
As a general rule, one can expect drawdowns for trend-following systems to approach the level of the returns. Thus, if a trend-following system is expected to generate a 30 percent annual return, you can expect a losing period in which the account may drop 30 percent from its highs.
∙Third, trend following requires a relatively large amount of money to trade using reasonable risk limits because of the large distance between the entry price and the stop loss price at which one would exit if the trade did not work out. Trading with a trend-following strategy with too little money greatly increases the odds of going bust.

Markets exist in 1 of 4 states:
∙Stable and quiet
∙Stable and volatile
∙Trending and quiet
∙Trending and volatile

Trend followers love markets that are trending and quiet. They can make money without having significant adverse price movement. This makes it very easy to keep a trade for a long time because the market does not give back profits during the trade. Volatile markets are much more punishing for trend followers. It can be very difficult to hold onto a trade when profits are vanishing for days or weeks at a time.
Countertrend traders love markets that are stable and volatile. These types of markets have relatively large swings but remain in a fairly narrow range of prices.
Swing traders like volatile markets, whether trending or not. Volatile markets present more opportunities because swing traders make money on short term price moves.

A Turtle never tries to predict market direction but instead looks for indications that a market is in a particular state.
This is an important concept. Good traders don’t try to predict what the market will do; instead they look at the indications of what the market is doing.

💭”Trade with an edge, manage risk, be consistent, and keep it simple. The entire Turtle training, and indeed the basis for all successful trading, can be summed up in these four core principles.”

One of the most important aspects of risk of ruin is that it increases disproportionately as the size of the best rises.
Doubling the amount risked per trade typically will not just double the risk of ruin; depending on the particulars of the system, it might triple, quadruple, or even quintuple it.

The Turtles used two approaches to money management:
∙ We put our positions in small chunks. That way, in the event of a losing trade we would have a loss on only a portion of a position.
∙ ATR:Average True Range: The method is based on the daily movement of the market either upward or downward in constant dollar terms. They determined the number of contracts in each market that would cause them all to move up and down by approximately the same dollar amount. Rich and Bill called the volatility measure N.

Arguably the most important element of the Turtle Way and the pivotal difference between the approach and perspective used by winning trades and that used by losing traders is that the Turtles were taught how to think in terms of the long run when trading and we were given a system with an edge.

We were trained explicitly to avoid outcome bias, to ignore the individual outcomes of particular trades and focus on expectation instead.

The Turtle Mind
∙ Think in terms of the long run when trading.
∙ Avoid outcome bias.
∙ Believe in the effects of trading with positive expectation.

The secret of trading and of the Turtles’ success is that you can trade successfully by using ideas and concepts that are well known and have been around for years. But you have to follow those rules consistently.

The basic idea was to buy if a market exceeded the highest price for a particular number of preceding days, that is, broke out of its prior price levels. We had an intermediate-length system that Rich and Bill called System 1 that considered 20 days (or 4 trading weeks) of prices to determine the highs and lows and a longer-term system, System 2, that used 60-day (12-week) highs and lows to determine the break-out. We would calculate the most extreme highs and lows for each system at the end of each day. Generally, this meant looking back to determine one or two prices that were the high on the basis of their visual appearance. Most days, the highs would remain the same and there would be no work to do. Each system had two types of exits. The first was a stop loss exit that was a maximum of 2N, or two average true ranges away from the entry point. This also happened to represent 2 percent of our account because the way we determined the number of contracts to trade per market also was based on N (average true range).

The lessons of the Turtle class can be summed up in these four points:

💭”Good trading is not about being right, it is about trading right. If you want to be successful, you need to think of the long run and ignore the outcomes of individual trades.”

It turns out that it is much easier to make money when you are wrong most of the time. If your trades are losers most of the time, that shows that you are not trying to predict the future.

📈It may seem odd that losing trades outnumber the winning trades by so much. This is actually a very common occurrence in trend-following systems.

Dos and Don’ts for thinking like a turtle

💭”Trading with an edge is what separates the professionals from the amateurs. Ignore this and you will be eaten by those who don’t.”

In trading, the best edges come from the market behaviors caused by cognitive biases.

To maximize your edge, entry strategies should be paired with exit strategies.

💭”Edges are found in the places that are the battlegrounds between buyers and sellers. Your task as a trader is to find those places and wait to see who wins and who loses.”

If one is employing a countertrend strategy, support and resistance is the direct source of the edge.

If one is using a trend-following system, the breakdown of support and resistance is what matters.

There is a statistically significant tendency for the markets to move further when support and resistance breaks down than at other times.

As breakout traders, we were buying resistance breakdown to enter long trades and selling support breakdowns to enter short trades.
We sold short-term support breakdowns to exit long trades and bought short-term resistance breakdowns to exit short trades.

The prices near the edges of support and resistance represent what I call points of price instability. They represent places where prices are unlikely to remain but are more likely to move higher or lower.

Points of price instability represent good trading opportunities.
At these points there is a relatively small price difference between a trade working and not working.
The cost of being wrong is lower.

In classic battles, the General of the attacking army waits until the best opportunity for success presents itself. He may send small forays to test the defenses of the enemy, but he does not put the full weight of his army into the attack until the proper time.
⇒Enter with half sized contracts that are not A+ setups.

💭”Mature understanding of and respect for risk is the hallmark of the best traders. They know that if you don’t keep an eye on risk, it will set its eye on you.”

The Sharpe Ratio
∙is the most common measure used by pension funds and large investors in comparing potential investments.
∙A measure for comparing the performance of mutual funds.
∙A reward to variability ratio.
∙It takes the differential return, which is the CAGR % for the period being measured(ie: a monthly or yearly period subtracts what is known as the risk-free rate or the rate of interest one could et by investing in a risk-free bond such a T-bill) and then divides it by the standard deviation of the returns being measured(generally monthly or yearly).
∙Although the Sharpe ratio is an excellent measure of risk/reward in comparing stock portfolio management strategies, it is not a sufficient measure for comparing alternative investment funds such as futures and commodities hedge funds.

📈Systems and strategies that do not appeal to the typical investor tend to have much longer lifetimes. Trend following is a good example. Most large investors are uncomfortable with the large drawdowns and equity fluctuations that are common to trend-following strategies. For this reason, trend following continues to work over a long period of time.

💭”Ruin is the risk you should be concerned with the most. It can come like a thief in the night and steal everything if you aren’t watching carefully.”

I highly recommend taking a conservative approach for the first several years of trading.

Money management should not be that complicated.

The primary goal of trading should be to stay in the game. Time is on your side. A system or method with positive expectation eventually will make you rich, sometimes beyond your wildest dreams. This can happen only if you can continue trading.

Your trading methods should be designed as much as possible to reduce the uncertainty you can expect to encounter when trading. The markets are already uncertain enough; there is no sense adding to that variability with poor money management practices.

Each unit was sized by determining the number of contracts where 1 ATR of price movement would be equal to 1 percent of our account size.

💭”Don’t spend all your time admiring the fancy tools in the magazines. First learn how to use the basic ones well. It’s not the size of your tools that counts but how well you use them.”

Common trend followings building blocks:
• Breakouts: These are situations when the price exceeds the highest high or the lowest low for a specific number of days. This was the primary tool used in the original Turtle system.
• Moving averages: These are continuously calculated averages of the price for a specific number of days. They are called moving averages because they are calculated each day and their value therefore moves up and down with the new prices.
•Volatility channels: These are built by adding a specific amount of price to a moving average that is based on a measure of market volatility such as the standard deviation or ATR.
• Time-based exits: These are the simplest possible exits: You exit the market at a specific, predetermined time (e.g., exit the market after 10 days or after 80 days).
• Simple look-backs: These involve a comparison of the current price with a historical price at some earlier period.

New high price is a strong indicator of the possibility that a trend is beginning.

Volatility channels are good indicators of the beginning of a trend.

💭”Keep it simple. Simple time-tested methods that are well executed will beat fancy complicated methods every time.”

Long-term trend following systems:
• ATR Channel Breakout: A volatility channel system that uses ATR as the volatility measure.
• Bollinger Breakout: A volatility channel system that uses the standard deviation as the volatility measure.
• Donchian Trend: A breakout system with a trend filter.
• Donchian Trend with Time Exit: A breakout system with a trend filter and a time-based exit.
• Dual Moving Average: A system that buys and sells when a faster moving average crosses over a slower moving average. Unlike the other systems, this system is always in the market, either long or short.
• Triple Moving Average: A system that buys and sells when a faster moving average crosses over a slower moving average but only in the direction of the major trend defined by a very slow-moving average.

For every true expert, there are scores of pseudo-expert, who are able to perform in the field, have assembled loads of knowledge, and in the eyes of those who are not experts are indistinguishable from the true experts. These pseudo-experts can function but do not really understand the area in which they claim expertise.

True experts do not have rigid rules; they understand what’s going on, and so they do not need rigid rules.

☕️One sure sign of a pseudo-expert is writing that is unclear and difficult to follow. Unclear writing comes from unclear thinking. A true expert will be able to explain complicated ideas in ways that are clear and easy to understand.

Entry that has an edge can account for the entire profitability of a system.
⇒Refine your entry point.

When you are looking at a short-term track record, you could realize that much of what you are seeing is attributable to luck. If you want to know whether a particular trader is one of the lucky average or one of the excellent few, you need to dig deeper than the track record and focus on the people behind the track record.

The presence of “cliffs”, large changes in results for a very small change in parameter values is a good indication that you have overfit the data and can expect results in actual trading that are wildly different from those which you achieved in testing.

💭”Trading with poor methods is like learning to juggle while standing in a rowboat during a storm. Sure, it can be done, but it is much easier to juggle when one is standing on solid ground.”

☕️Even a rough idea can provide enough edge to enable a good trader to make a lot of money.

Anyone who tells you that you can expect to see a particular level of performance is lying or does not know what he is talking about. If he is trying to sell you something, I strongly suspect the former.

💭”Trading is not a sprint; it’s boxing. The market will beat you up, screw with your head, and do anything it can to defeat you. But when the bell sounds at the end of the twelfth round, you must be standing in the ring in order to win.”

The major classes of markets are as follows:
• Fundamentals-driven markets
• Speculator-driven markets
• Aggregated derivative markets

It takes at least $100,000 to trade a long term trend following system using futures contracts with reasonable diversification.

💭”The market does not care how you feel. It will not prop up your ego or console you when you are down. Therefore, trading is not for everyone. If you are unwilling to face the truth about the markets and the truth about your own limitations, fears and failures, you will not succeed.”

Many find it hard to comprehend that Richard Dennis could have made several hundred million dollars by using a handful of simple rules.

If you want to be a great trader, you must conquer your ego and develop humility.
→Humility allows you to accept the future as something that is unknowable.
→Humility will keep you from trying to make predictions.
→Humility will keep you from taking it personally when a trade goes against you and you exit with a loss.
→Humility will let you embrace trading that is based on simple concepts because you won’t have a need to know secrets so that. you can feel special.

Trend following is probably not for most people. Each style requires a particular psychological makeup that you may or may not possess. Matching your personality with its strengths and weaknesses against a particular trading style is very important, and several of the authors mentioned above can speak more authoritatively on this subject.

Lessons from the Turtles

💭”Two roads diverged in a wood, and I took the one less traveled by, and that has made all the difference” — Robert Frost

Nothing ventured, nothing gained. Risk is your friend. Don’t be afraid of it. Understand it. Control it. Dance with it. Traders take chances with good expectation but expect to lose regularly.

You should thank your enemies because they teach you more than your friends and family do.

You won’t learn if you are not willing to make mistakes and fail.

💭”I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” — Richard Dennis

※Components for a complete trading system:
• Markets: what to trade
• Position Sizing: how much to trade
• Entries: When to trade
• Stops: When to get out of a losing position
• Exits: When to get out of a winning position
• Tactics: How to trade

💭”There are old traders and there are bold traders, but there are no old bold traders.”

💭”I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” — Richard Dennis