The Turtle Trend strategy is one of the popular trading strategies that was popularized by Richard Dennis and his partner William Eckhardt in the 1980s in the futures market. Turtle Trend Titan adapts this strategy to the broader stock market.

First of all, I would like to point out that the aim of this study is to show you a trend-following strategy that has repeatedly outperformed the S&P500 index, and its results look as follows:

However, to understand the nature and merits of this strategy, it is worth learning a bit about the history of the Turtle Trend.

**Inspiration**

The original Turtle Trend strategy gained popularity after Dennis and Eckhardt conducted an experiment in which they quickly taught a group of people, later called "Turtles," how to trade according to their system.

**Basic rules of the Turtle Trend strategy:**

Turtle Trend uses the highest and lowest price from a given period in the past, also known as Donchian channels.

In the standard Turtle Trend strategies, 2 types are used:

**Strategy 1**: breakout of the 20-day Donchian for entry and 10-day for exit;

**Strategy 2**: breakout of the 55-day Donchian for entry and 20-day for exit.

Examples of entry and exit signals on a chart:

The Turtle Trend is based on the principle of entering a position when the price crosses the upper or lower range of the Donchian channel. If the price crosses the upper range, a signal is given to open a long position. If the price crosses the lower range, a signal is given to close that position or open a short position.

For stocks that naturally have an upward drift, we focus on long positions.

Before discussing whether and how this strategy can be applied to stocks, we will conduct some tests to show how default values perform in a reversal stock market.

To demonstrate the specificity of applying this strategy, I executed two buying strategies for the SPY ETF at market close according to the original rules:

Strategy 1 opens a position if the closing price is above the maximum High of the last 20 days, and closes the position if the Close is below the lowest Low of the last 10 days.

Examples of transactions look like this:

The equity chart for an initial investment of $100k and MM% looks as follows:

The strategy only started to work in a way that we could consider acceptable after 2008, but when compared to the benchmark, the strategy performs very poorly.

The situation looks even worse if we apply Strategy 2, where the Donchian setting is 55 for entry vs. 20 for exit.

Here is the Equity of this Strategy 2 on SPY compared to the benchmark (SPY Buy and Hold):

The above results unfortunately are not improved at all by using other instruments represented by ETFs such as QQQ or IWM, as well as using a wide range of stocks.

Should we then consider that trend-following strategies of this type are not worth our attention in the stock market?

I believe they are definitely worth considering, mainly because it is a type of strategy that works in the opposite mechanics to the dominant reversal strategies here.

A balanced portfolio of strategies should, in our opinion, be based on a mix of different types of strategies, so trend/breakout strategies are very desirable in such a mix even if they are not our best strategies.

Below, I present the Turtle Trend Titan strategy based on the Turtle Trend philosophy and Donchian Channels, which I have adapted to the specifics of the stock market.

# Key components

**Detecting breakouts**from large consolidations or trend reversals.**Donchian Channel**used for entry and exit signals.**Additional filters**excluding trading in unfavorable market conditions for the strategy.**Stockpicker mechanism**, which searches for and automatically selects stocks that meet the criteria.

# Backtest 1, $ Money Management

In this variant, we invest a constant amount of $100k, which is divided by the maximum number of open positions.

We are testing the period of the last 30 years from 1994-05.2024.

The backtest automatically selects stocks that meet the criteria from the Nasdaq 100 index. Remember that the list of stocks included in the index changed in different years, which is taken into account in the Stockpicker data (survival bias).

Invested capital: $100k

Tested period in years: 30

Tested years: 1994-05.2024

Tested Index: Nasdaq 100

Equity chart for this test:

Basic statistics and results month by month:

Summary of statistics - all data according to the position closing date.

# Backtest 2, % Money Management

In this backtest, we are investing in a strategy that constantly uses 100% of the current capital (starting with $100k capital). This means that as the capital grows or decreases, the position value changes proportionally. The rest of the parameters remain unchanged.

The Equity Chart for this test looks as follows:

Basic statistics resulting from the test:

# Additional information about the strategy

**Net profit and CAGR**

Net profit above $12.5 million is significantly higher than the Benchmark (S&P 500 Index in the form of SPY ETF marked in yellow on the chart), which is $1.8 million, translating to a CAGR of 17.50% vs 10.38%. This means that the analyzed strategy achieves a much higher net profit and a higher average annual return rate, indicating its very good efficiency in generating profits over the long term.

**Drawdown and Return/Drawdown ratio**

The maximum drawdown in the analyzed strategy was 18.7% vs 55.19% in the benchmark, resulting in a significantly better Return/Drawdown ratio of 18.35 vs 4.41. This indicates that the analyzed strategy was less risky and very stable.

**Exposure**

The average exposure in the analyzed strategy was 69% vs 100% in the benchmark. The study was conducted on the underlying instrument, which are Nasdaq100 index stocks. __Exposure__ is measured by a dedicated study, which you can read about here.

The analyzed strategy used less capital on average, making it less exposed to market risks, and the free capital can be used in other strategies.

**Winning percent**

The winning percent in the analyzed strategy was 47.0%. This means that less than half of the transactions were profitable, which is a much weaker result compared to reversal strategies, but a fairly good result in trend-following strategies.

The goal of this Turtle Trend Titan strategy is to capture long trends and compensate with large wins for a significant number of smaller losses.

**SL & TP**

The strategy does not use stop loss and take profit. According to our tests, for most stock strategies, these settings worsen results. The strategy has one exit signal. Diversification of positions within one strategy and across the entire portfolio serves as protection against the strong impact of a potential price change in one stock on the entire portfolio. Visit the __stop loss order__ page.

**Market regime**

The strategy was tested in all basic __market regimes__ and includes filters implemented based on this.

**Trading costs**

Trading costs and slippage were taken into account in the backtests, which occurred in real account tests for the Alpaca broker. With a diversified portfolio of stocks and strategies, transaction costs can determine your profit or loss, so take the time to thoroughly test and choose a broker.

**Robustness**

The robustness was tested by conducting a large number of stock transactions (max open positions 100) for the period from 1994-05.2024 for the S&P500 (4'960 transactions) and Russel1000 (5'235 transactions) indexes with %MM.

S&P500 max transactions: 4'960

Russel1000 max transactions: 5'235

The results are as follows:

This strategy also passed our manual parameter modification tests. We adhere to the principle that the fewer parameters, the more resilient the strategy. Therefore, we make an effort for our strategies to have as few parameters as possible and to only select parameters that have a significant impact on strategy effectiveness while also aligning with its nature.

**Recommended Instruments**

The recommended primary instrument for this strategy in Algocloud Stockpicker is the Nasdaq100 index, which has shown the best historical results. However, the strategy also yields stable results with S&P 500 stocks.

Primary Instrument: Nasdaq 100

Supplementary Instrument: S&P 500

**Pattern Day Trader**

Statistically, the strategy did not close any trades on the same day, so it does not meet the __Pattern Day Trader__ (PDT) criteria. This means it can also operate successfully on accounts below $25k.

**Correlation**

To check the correlation of the strategy with others, visit the __correlations__ page.

The strategy shows an inverse correlation to reversal strategies, which is a significant advantage. This means that if the market sharply declines after an uptrend, reversal strategies incur losses while Turtle Trend

Titan collects long-accumulated profits from its positions, offsetting the losses of the former. The reverse situation occurs at the beginning after implementation, where some quick losses generated by TTT may be present but are balanced by the profits of reversal strategies. This is the synergy resulting from the strategy portfolio.

# Summary & Strengths and weaknesses of the strategy

**Strengths of the Strategy**

**Profit Stability**

In the analyzed strategy, Net Profit was an outstanding $12 million, while the Benchmark achieved $1.8 million. The CAGR was 17.5%, significantly higher than the Benchmark's 10.38%.

**Inverse Correlation**

The strategy shows an inverse correlation to reversal strategies, which is a major advantage.

**Low Drawdown**

The Max Drawdown in the analyzed strategy was 18.7% compared to 55.19% in the Benchmark, indicating that the strategy is less risky and very stable.

**Strategy Robustness**

The strategy was tested on the S&P 500 and Russell 1000 indices, with over 10'000 trades, which gave very stable results and testified to the strategy's robustness.

**Weaknesses of the Strategy**

**Capital Engagement**

The strategy involves relatively high capital engagement.

**Low Winning Percent**

A weak aspect of the strategy is its relatively low win-rate of 47%, which is normal for trend-following or breakout strategies. This is compensated by the average win to average loss ratio, where the average winning position is 3.8 times larger than the average losing position.

**Summary**

In our opinion this is not a strategy designed to "pull" all the results of a stock trading portfolio. The biggest profits come from reversal strategies and will likely remain so for a long time. However, strategies like the Turtle Trend Titan have a very important characteristic for us, namely a low or even negative correlation to reversal strategies. During strong upward impulses, when most reversals have already taken profits, these strategies provide satisfaction from "catching" the trend and pushing the result higher. Similar behavior of collecting profits at the end of trends balances any potential losses during the time of reversal strategies.

This is a very important role, so please consider adding such strategy to your portfolio.

What you get in the package for this strategy:

Ebook describing detailed rules and results of the strategy

SQX file ready to use on the

__Algocloud__and__StrategyQuant__platforms.Pseudocode that describes all the rules in an easy-to-understand way.

If you need the code of this strategy in Multicharts, MT4, or MT5 (MQL) formats, please contact us on this topic.

### Disclaimer

The results obtained from historical data do not guarantee future outcomes. The effectiveness of a strategy can change over time. Backtesting is a tool that allows for the analysis and evaluation of an investment strategy based on historical data. Various factors, such as market changes or economic conditions, can influence the effectiveness of a strategy over time.

Investing always involves risk. This material is not investment advice. We share our experience and algorithms for educational purposes. We make efforts to ensure that our algorithms are error-free, but neither we nor the tools we use guarantee the absence of technical issues. Any decisions to use a particular strategy are made at your own risk and should be preceded by careful understanding and verification. You should always carefully consider your investment goals and risk tolerance before making investment decisions.

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