Trading strategy: Turtle Soup
Description
The Turtle Soup strategy was developed by trader-author Linda Bradford-Raschke and published in her book Street Smarts: High Probability Short-Term Trading Strategies. The strategy’s name is a reference to a well-known strategy called Turtle trading. This strategy was taught by Richard Dennis and William Eckhardt in the 1980s to a group of novice traders called the Turtles. Linda Bradford-Raschke inverts the reasoning behind the Turtle strategy in order to develop a short-term trading method.
| Suitable for | : EUR/USD, GBP/USD, EUR/CHF |
| Instruments | : Spot forex, forex CFDs and forex futures |
| Trading type | : Day trading |
| Trading tempo | : 2-3 signals per day on a 30’ chart |
| The strategy | : |
| Using NanoTrader Full | : Manual and (semi-)automated |
The strategy in detail
The Turtle strategy designed by Dennis and Eckhardt is a trend-following strategy. Trend-following strategies typically have a low percentage of winning trades (<50%, usually around 40%). The profits on the winning trades are, however, sufficient to make up for the losing trades and then some.
Trend-following strategies, given their low percentage of winning trades must, per definition, have a high amount of false breakouts and short-term reversals. Linda Bradford-Raschke wanted to develop a strategy which benefits from false breakouts and short-term reversals. This would, in her opinion, result in a high-probability strategy. The result was the Turtle Soup strategy which, in a way, is the Turtle strategy turned on its head.
The Turtle Soup strategy is applied to forex pairs on 30-minute charts.
When to open a position?
A buy signal is given when the market price hits a 5-period low. A short sell signal is given when the market price hits a 5-period high. Positions are opened at the close of the 30-minute period.
The Turtle Soup trading strategy, however, does not react to all signals all the time. It uses a signals filter and a time filter. The time filter block all signals outside the period 06h00- 22h00. The signals filter consists of two exponential moving averages (EMA), a 21-period EMA and a 30-period EMA. When the fast EMA (21-period) lies above the slow EMA (30-period) only buy signals are accepted. When the fast EMA lies below the slow EMA only short sell signals are accepted.
When to close a position?
The Turtle Soup strategy uses a stop. The stop is a fixed stop calculated as 3x the 20-period ATR (average true range). This stop is far from the market price. It can be considered an emergency stop which will rarely be hit.
Positions are also closed when the market price reaches a 5-period high or low. To be precise, a long position will be closed when the market price hits a 5-period high. A short sell position will be closed when the market price hits a 5-period low. Open positions are closed at the close of the 30-minute period.
This example shows two buy signals. The buy signals are accepted because (1) the signals filter is positive (green background) and (2) the signals appear within the 06h00-22h00 time interval. The signals are 5-period lows. The first long position is closed with a profit when the first 5-period high appears. The second long position hits the fixed stop (red line) and is closed with a loss.
This example also shows two buy signals. The buy signals are accepted because (1) the signals filter is positive (green background) and (2) the signals appear within the 06h00-22h00 time interval. The signals are 5-period lows. The first long position is closed with a profit when the first 5-period high appears. The second long position is also closed with a profit when the first 5-period high appears.
This example shows a short sell signal. The short sell signal is accepted because (1) the signals filter is negative (red background) and (2) the signal appears within the 06h00-22h00 time interval. The signal is a 5-period high. The position is closed with a very small profit when the first 5-period low appears.
This example shows a short sell signal. The short sell signal is accepted because (1) the signals filter is negative (red background) and (2) the signal appears within the 06h00-22h00 time interval. The signal is a 5-period high. The position is closed with a loss at the first 5-period low.
These screenshots show longer term back-tests for several currency pairs. The percentage of winning trades is around 60% for all currency pairs. For the forex pair GBP/USD the percentage is, for example, 60,49%.
The results on the EUR/USD forex pair.
The results on the EUR/GBP forex pair.
The results on the EUR/CHF forex pair.
The results on the EUR/JPY forex pair.
Conclusion
The Turtle Soup trading strategy delivers what its author, Linda Bradford-Raschke, set out to create: a strategy based on a trend-following approach but which only trades on false break-outs (i.e. when it appears the trend has changed) and short-term reversals. These are the movements the strategy tries to benefit from. The back-tests appear to give steady results on the currency pairs tested.
Practical implementation
In NanoTrader Full follow these steps:
- Choose the instrument you wish to trade.
- Open a chart with the template study "WHS Turtle Soup".
- Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.