First of all, Hello to all. I’m a Forex Noob, been trading stocks in the US for a couple of years and it’s been quite generous to me, using the Turtles’ method for position sizing.
Now stocks are not leveraged like Forex ‘could’ be, so it’s a bit simpler to set stop-loss orders based on 2xATR(20), since Dollar per Point is .01 across the board.
Enough of me going on and on, my question is I was looking at for say daily chart of EUR/USD pair today, it was trading at around 1.26700 with an ATR(20) value of .0100. Now say I have a mini account and I go to set my stop loss at 2xATR(20), with gives me .0200 or 200 pips! it’s impossible to have that happen with even a $10k account risking $100 without a margin call before my stop-loss is triggered. Am I missing something here? Please help and if you do have the right calculations for the turtle’s position sizing algorithm that I can’t seem to figure out, I would truly Appreciate that. Thank you all!
Stocks have been generous to you??? THEN STICK WITH THEM!!! (I’m kinda ‘well known’ for my opinion on this around these parts)!!! WHY OH WHY would somebody who is making money trading a particular market move to another??? Also be FULLY aware: trading systems or methodologies that work profitably for trading stocks or commodities DO NO NECESSARILY work profitably for trading FOREX!!! YOU HAVE BEEN WARNED (by somebody who has proved this TOO many times to be wrong)!!! LOL!!!
HOWEVER and IF YOU INSIST:
I consider my self a sort of ‘expert’ on the Turtle Trading System (I’m giving my ‘secrets’ away here)!!! LOL!!!
You are QUITE correct in your calculation i.e. that (around 200 pips) would be the approximate distance (as of yesterday for EUR/USD) that you would place your initial stop away from your initial entry price i.e. from the top or bottom channel. But your question does not make sense to me i.e. your position size is adjusted according the stop distance and not the other way around. In other words: a potential loss of 200 pips must be representative of a 2% loss of your account and your position size must be adjusted accordingly. Here leverage comes into play and I THINK that’s where you’re having an issue unless I’m really not understanding your problem.
Well in THEORY they work for any market but in practice I don’t find that. It’s a trend following system and in my humble opinion: nothing trends better than (most) commodities. But I guess if you know your forex pairs well: then you’d have no problem using it on a pair that normally trends and trends WELL. There would be no reason ‘tweak’ anything if you traded the ‘right’ pair with it.
I don’t know: maybe a thread ‘dedicated’ to it would be interesting for some??? There are indeed one or two of my own ‘tweaks’ that I’ve found improve performance BUT ONLY SLIGHTLY that is. And of course: it’s not everyone’s ‘cup of tea’ either (sometimes I wonder if it’s mine given the patience that is required to trade it)!!! LOL!!!
The issue with the Turtle system is that it was designed to trade across multiple markets, not just one. The idea is that while one market or set of markets is ranging one or more others could be trending. That tends to smooth out the drawdown issues faced by trend following systems. If all you’re trading is forex or stocks then you lose that side of the Turtle system’s value.
Well I’ve always been interested in the Forex market and told myself one day i’ll try to learn it, so here I am!
I think leverage is what is confusing me and exactly how that fits into the turtles’ position sizing. What I was ‘trying’ to ask is with so much leverage and a stop-loss of 200 pips, I would need quite a bit of capital on just one trade. Is that right or am I still missing something? and how do you compute position size when leverage is involved?
Thanks John. Good point. Of course: my ‘anti forex bias’ comes into play in all my posts of late!!! LOL!!! I guess I should stop that. To be honest: I’ve had some success trading ‘System 2’ (the 20-period lookback period with the 10-period lookback period for TP) on five minute charts of EUR/USD but using ONLY the channels and single lots i.e. not worrying about scaling in multiple positions etc. On that short timeframe you just don’t have the time to be able to calculate your entry points etc.
Hey Aydo,
Think about it in stock terms. Each tick may be $0.01 BUT it depends on your position size that will determine the $ value per tick movement. Same with forex. Let’s say that 2 x ATR(20) is 200 pips. If you were trading a mini lot of EUR/USD (10 000 units) at 200:1 then you would be getting $1 per pip movement. That would mean that the $ equivalent of such risk would be $200 and if you’re sticking with the Turtle Rules (risking only 2%) then you would need an account size of $10 000. If you were trading micro lots (1 000 units) then you’d be getting $0.10 per pip movement and would need an account size of $1 000. If you were trading nano lots (100 units) then you’d be getting $0.01 per pip movement and would need an account size of $100.
Regards,
Dale.
Edit:
Sorry: I now think I know what the problem is. Remember: the position SIZE is what determines the $ value per pip movement NOT the leverage. All the leverage determines is how much margin is going to be in use for the position is all.
Noooo. Defintely not. The Turtle’s only risked 2% per trade.
Tell ya what!!!
I’m going to attach ‘The Original Turtle Trading Rules’ document here. It’s NOT subject to copyright so there should be no issues whatsoever.
UNFORTUANATELY: I’ve read the books written by the Turtle’s AFTER this experiment and there are some very subtle differences between this document and THEIR ‘recollections’ of the experiment so far as I can tell. ‘My money’ is on THESE rules that are attached.
I’ll tell ya this also: EVEN IF this system is ‘not your style’ READ the document ANYWAY i.e. there’s some REAL good ‘pshycological info’ in it!!!
Regards,
Dale.
Edit:
Sorry: that’s not to say that they didn’t risk a HUGE percentage AT ANY ONE GIVEN TIME but NOT on a SINGLE TRADE if that makes sense. To be honest (and as ‘rhodytrader’ may have been trying to note): it’s more of the ‘shotgun approach’ to trading i.e. trade anything and everything and never skip any signals. That was the ‘key’ to the system. If you read carefully (the books anyway) it was the Turtle’s that were ‘discretionary’ in taking signals that failed and those that ignored the risk management rules.
NOW that we’re on the subject ‘fully’ let me add: at some point during the experiment it was pointed out that 2% risk per trade was TOO MUCH and it was changed to 1% if I’m not mistaken. And if you ‘do the math’ you’ll see why i.e. starting with 2% on your initial entry at 2 x ATR(20) eventually became WAY more after you were ‘fully loaded’ on a position.
Edit 2:
My ‘FOREX opinion’ (for what it’s worth) would be to look at the ???/CHF pairs. Not very volatile and therefore will take longer to make money BUT at least you wont constantly be stopped out. In addition: they appear to trend WAY better than the majors. That said: trade commodities with this system (Sugar being a find example) and you’ll ‘see the difference’.
dpaterso, thank you very much for all this insight. I agree with you about the 2% being a little too much, cause if you do add to the positions at 1/2N intervals with a unit each time, that puts you at about 8% now I know that you move your stop-loss to the newest price - 2xATR(20).
Back to my original predicament, I’m starting to catch on with the idea in my head. Now I just have to translate it to the equation. How does this look? say I have $1k and trading a micro account.
$10 / (.0100*.01) = 100,000 <- is that units? or what I don’t quite get that, or maybe I got this formula wrong for forex?
As I said: stocks may move ‘across the board’ (as you put it) in $0.01 increments / points / ticks right. BUT: that’s NOT to say that YOU are getting $0.01 per increment / point / tick. That depends on your position size. SO: if you bought or sold 100 units of a particular stock you’d be getting $1 per increment / point / tick right???
Now FOREX.
Any ???/USD pair will give you $0.01 dollars per pip movement (help me out here John) per 100 units??? So 100 units of EUR/USD will give you $0.01 dollars per pip movement. Leverage makes NO difference here.
So in order to calculate your positions size on EUR/USD (using yesterday’s EUR/USD ATR(20) data):
On a $1K account the MOST you are ‘allowed’ to risk as per ‘the rules’ would be $20 (2% i.e. we’ve not even GOTTEN to the 1% rule here yet). On a micro account (which to ME is an account where the minimum lot size is 1 000 units) you would be getting $0.10 per pip movement. So if 2 x ATR(20) is 200 then 200 x $0.10 is $20 and within ‘the rules’. BUT: if you use the 1% ‘new rule’ then you need another $1K in your account. Make sense???
YES! I finally got it! I was getting the whole leverage thing mixed up and complicating it with the unit sizes and what not, God I felt like my head was going to pop for the past couple of days. Thank you!
Now just to be absolutely sure, the above example you posted is for one trade and we cannot enter another trade with more capital… please tell me I’m right
That’s for ONE trade on ONE instrument (forex pair). That does not mean that you cannot have multiple trades open at one time and I would imagine that the total amount of CUMULATIVE risk ‘on the table’ would be up to you and I’ve no idea how much they risked CUMULATIVELY at any one time but I’m sure someone will ‘chime in’ here with a rule of sorts. Welles Wilder for example would risk up to 60% of an account at any given time. But remember that’s CUMULATIVE risk and NOT on a single trade!!!
And yes you ARE INDEED 100% correct with correlations ESPECIALLY on forex pairs so just ‘watch it’. SOMEWHERE on the forums I posted a wonderful link to an article on Investopedia about the most traded currency pairs and the article included details about the correlations between them. Just search for the post (all of those posts start with the word ‘Article:’ in the title). I myself SOMEHOW STILL sometimes manage to land up creating a sort of ‘hedge’ i.e. having open positions on highly correlated instruments where the SUM TOTAL of the trades goes NOWHERE and it can be very frustrating at times. I’m SURE before I start ‘pushing daisies’ I’ll figure it out!!! LOL!!!
If you really want to get SCIENTIFIC about it then do a search for a book called ‘New Concepts In Technical Trading Systems’ by J. Welles Wilder Jnr. (and I never told you to do that i.e. that was the first book that I BOUGHT). He devised a rather unique method of ‘choosing’ what to trade based on ATR and tick (well in your case pip) values as well as margin requirements etc. You would be surprised at the results i.e. what you may THINK is a ‘good deal’ (a ‘good instrument’) to be trading may not necessarily be so. The idea of the equation (it’s called ‘The Commodity Selection Index’ designed FOR COMMODITIES TRADING but can be adapted for anything really) is to have you always trading whatever instrument is giving you the ‘best bang for buck’ in relation to it’s DIRECTIONAL MOVEMENT (trend strength). That could certainly be applied here.
