Eckhardt in Practice: A Case Study of a Turtle-Style Trade from Entry to Exit

To truly understand the power and elegance of the Turtle Trading system, it is not enough to simply study the rules; one must see them in action. In this article, we will walk through a hypothetical case study of a Turtle-style trade, from the initial entry signal to the final exit. This will provide a concrete illustration of how the various components of the system work together to create a disciplined, systematic, and, in this case, profitable trading experience.

The Setup

Let's imagine we are trading the December 2023 contract for Crude Oil (CLZ23). It is early October, and the market has been in a consolidation phase for several weeks. We are using the Turtle System 2, which is based on a 55-day breakout. The 55-day high is at $85.00, and the 55-day low is at $75.00. Our account size is $1,000,000, and the current N (20-day ATR) for crude oil is $2.00. Our unit size is calculated as follows:

Unit Size = (1% of Account) / (N * Dollars per Point) Unit Size = ($10,000) / ($2.00 * $1,000) = 5 contracts

The Entry

On October 10th, the price of crude oil rallies and trades at $85.01, one tick above the 55-day high. This is our entry signal. We immediately buy 1 unit (5 contracts) at $85.01. Our initial stop-loss is placed at 2N below our entry price, which is $85.01 - (2 * $2.00) = $81.01.*

Adding Units

The trend continues in our favor. We add our second unit at ½N above our entry price, which is $85.01 + (0.5 * $2.00) = $86.01. We buy another 5 contracts at this price. Our stop-loss for the entire position (10 contracts) is now raised to 2N below the price of our second entry, which is $86.01 - (2 * $2.00) = $82.01.

The market continues to rally, and we add our third and fourth units at $87.01 and $88.01, respectively. We now have a full position of 4 units (20 contracts), and our stop-loss for the entire position is at $88.01 - (2 * $2.00) = $84.01.*

Managing the Trade

As the trend continues, we do nothing but trail our stop-loss. We are using the System 2 exit, which is a 20-day low. As long as the price does not make a new 20-day low, we will remain in the trade. This is the most psychologically difficult part of the system, as we will have to watch our profits fluctuate, and at times, decline significantly. But we have confidence in our system, and we know that the only way to catch a major trend is to have the discipline to ride it out.

The Exit

By mid-November, crude oil has rallied to a high of $105.00. Our position is showing a massive profit. However, the trend begins to lose momentum, and the price starts to decline. On November 20th, the price trades at $98.00, which is a new 20-day low. This is our exit signal. We immediately sell all 20 contracts at $98.00.

The Results

Let's calculate the profit on the trade:

• 5 contracts bought at $85.01, sold at $98.00 = $64,950 profit
• 5 contracts bought at $86.01, sold at $98.00 = $59,950 profit
• 5 contracts bought at $87.01, sold at $98.00 = $54,950 profit
• 5 contracts bought at $88.01, sold at $98.00 = $49,950 profit

Total Profit = $229,800

This single trade resulted in a 23% return on our initial account equity. This is the power of a trend-following system. While most trades will result in small losses, the rare, large winning trades are more than enough to offset them and generate substantial profits over the long run.

Conclusion

This case study provides a clear illustration of the Turtle Trading system in action. It demonstrates the importance of having a complete, mechanical system that covers every aspect of a trade, from entry to exit. It also highlights the psychological challenges of trend-following, and the need for unwavering discipline to ride out the inevitable fluctuations in price. For those who can master the rules and the mindset, the Turtle system offers a timeless blueprint for success in the markets.