Saturday, December 23, 2006

Revisiting the Turtles

We have written about the Turtles before this in mock admiration because they proved that if you followed the rules you could profit in the market. The method was largely - take a trade whenever a certain criteria was met and set a firm stop loss under it. As long as the trade continued to meet the criteria stay - with it and keep trailing the stop loss.

So now I'm going to say what I should have said then - this works - all you need to do is stick to it. And that is what the Turtles basically proved - if you have something that works don't fix it.

I can prove it. I wrote a filter that was a little more complicated than normal.

Show stocks where low 2 days ago < lower bollinger band(20) 2 days ago
and low 1 day ago < lower bollinger band(20) 1 day ago
and close > open
and Average Volume(90) is above 500000
and close is between 15 and 35

This requires the low of the day to be below the lower bollinger band on the previous two days and that the day before the trade is taken the stock price went up. Same basic price range and volume constraints.

I then looked back 30 days and pulled out this list of stocks (highest 10 by volume on that day):

NT, HANS, DHI, PHM, TOL, CC, SPF, INTU, HOV, and AQNT. I then put a mythical 5000 investment in each stock. As of Friday: CC and INTU were both stopped out at a 5% loss and the rest were profitable. What are the returns - over the 30 day period the SPX returned 1.018 and this little system - let's call it the Turtle system - returned 1.119.

The key factor is - take the losses as quickly and painlessly as possible and let the winners run. That is how you trend follow.

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