Turtle Exits
The
Turtles used breakout based exits for profitable positions.
T
here is
another old saying: "you can never go broke taking a profit." The Turtles would
not agree with this statement.
Getting out of winning positions too early, i.e. "taking a profit" too early,
is one of the most common mistakes when
trading trend following systems.
Prices never go straight
up; therefore it is necessary to let the prices go against you if you are going
to ride a trend. Early in a trend this
can often mean watching decent profits of 10% to 30% fade to a small loss. In
the middle of a trend, it might mean
watching a profit of 80% to 100% drop by 30% to 40%. The temptation to lighten the position to "lock in profits"
can be very great.
The Turtles knew that
where you took a profit could make the difference between winning and losing.
The Turtle System enters
on breakouts. Most breakouts do not result in trends. This means that most of
the trades that the Turtles made
resulted in losses. If the winning trades did not earn enough on average to offset these losses, the Turtles would have lost
money. Every profitable trading system has a different optimal exit point. Consider the Turtle System; if you
exit winning positions at a 1 N profit while you exited losing positions at a 2 N loss you would need twice as many
winners to offset the losses from the losing trades.
There is a complex
relationship between the components of a trading system. This means that you
can’t consider the proper exit for a
profitable position without considering the entry, money management and other
factors.
The proper exit for
winning positions is one of the most important aspects of trading ,and the
least appreciated. Yet it can make the difference between winning and losing.
Turtle Exits
The System
1 exit was
a 10 day low for long positions and a 10 day high for short positions. All the
Units in the position would be exited
if the price went against the position for a 10 day breakout.
The System
2 exit was
a 20 day low for long positions and a 20 day high for short positions. All the
Units in the position would be exited
if the price went against the position for a 20 day breakout.
As with entries, the
Turtles did not typically place exit stop orders, but instead watched the price
during the day, and started to phone in
exit orders as soon as the price traded through the exit breakout price.
These are Difficult Exits
For most traders, the
Turtle System Exits were probably the single most difficult part of the Turtle
System Rules. Waiting for a 10 or 20
day new low can often mean watching 20%, 40% even 100% of significant profits
evaporate.
There is a very strong
tendency to want to exit earlier. It requires great discipline to watch your
profits evaporate in order to hold onto
your positions for the really big move. The ability to maintain discipline and
stick to the rules during large winning
trades is the hallmark of the experienced successful trader.
Category: Methods of technical analysis
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