Linda Raschke's Turtle Soup: A Contrarian Approach to Breakout Failures

Turtle Soup: Profiting from Failed Breakouts

Turtle Soup is a classic contrarian strategy that was popularized by Linda Raschke. The name is a playful jab at the famous Turtle Traders, who were known for their trend-following breakout strategies. Turtle Soup is designed to profit from the failure of those breakouts.

The Logic of Turtle Soup

The strategy is based on the observation that many breakouts fail. When a breakout fails, the traders who bought the breakout are trapped and forced to liquidate their positions, which can lead to a sharp reversal.

The Setup

• Identify a Key Level: The strategy requires a well-defined support or resistance level, such as a 20-day high or low.
• Wait for the Breakout: The price must break through the key level.
• Fade the Breakout: If the breakout fails to hold and the price reverses back below the key level, a trade is entered in the opposite direction of the breakout. For example, if the price breaks above a 20-day high and then closes back below it, a short trade is initiated.

A Contrarian Mindset

Turtle Soup requires a contrarian mindset. It is a strategy that goes against the crowd, but it can be highly effective for traders who are able to identify and act on these failed breakout patterns.