Richard Dennis's Risk Management: The Core of the Turtle System

Position Sizing

The Turtles used a volatility-based position sizing algorithm. The size of each position was determined by the market's volatility, as measured by the Average True Range (ATR). This meant that they would take smaller positions in more volatile markets and larger positions in less volatile markets. This approach ensured that no single trade would have a disproportionate impact on the portfolio.

Stop-Loss Placement

The Turtles used a simple stop-loss rule: they would exit a trade if the price moved against them by 2N, where N was the 20-day ATR. This meant that their risk on any given trade was limited to a predefined amount.

Portfolio-Level Risk

In addition to managing risk at the individual trade level, the Turtles also managed risk at the portfolio level. They had rules that limited the total amount of risk they could take on at any given time. This prevented them from becoming overexposed to any single market or sector.