Turtle Trading Rules Explained

This is a story of beginners who beat professional traders after learning the mechanisms for two weeks. The idea sounds bold, almost unbelievable. Yet it became one of the most talked-about strategies in market history.

In this guide, we break down what the turtle trading strategy is, why it became famous, and how traders still use parts of it today. The goal is simple. You understand the rules, you see clear examples, and you finish with a strong idea of whether it fits your style.

What is Turtle Trading Strategy?

The turtle trading strategy is a trend-following system that uses simple breakout rules, position sizing, and strict risk control to capture big market moves. It works on one core idea. Markets trend for long periods, and a trader who enters early and holds with discipline can make large gains.

The strategy became popular because of the story behind it. Richard Dennis, a well-known commodities trader in the 1980s, believed good traders could be trained. His friend William Eckhardt disagreed. Dennis decided to prove his point with an experiment that shaped trading history.

How Did the Richard Dennis Trading Strategy Begin?

Richard Dennis created a public advertisement to recruit students. He wanted people with no trading background. Applicants included security guards, gamers, teachers and people from very ordinary jobs. They were not selected for experience. They were selected for discipline and logical thinking.

Dennis trained them for two weeks using a short rulebook. He told them when to enter, when to exit, how to size positions, and how to manage risk. There was no guesswork. No feelings. No complicated indicators. Only clear rules.

He then gave them real money to trade. Many of these new traders performed extremely well. Some produced returns that rivalled professional fund managers of that period. Dennis called them his Turtles because he believed traders could be grown the same way turtle farms raised turtles in Singapore.

This is why many traders today still call it the Richard Dennis trading strategy.

What Are the Core Turtle Trading Rules?

The turtle trading strategy uses a few simple rules. Each rule is direct and easy to understand. The power comes from following them without hesitation.

1. Entry Rules

The Turtles used two breakout systems.

System One:

Enter a trade when the price breaks the 20-day high or the 20-day low.

If the price crosses the highest point of the last 20 days, they buy.

If the price falls below the lowest point of the last 20 days, they sell.

System Two

Enter on a 55-day breakout.

This system catches longer trends with fewer fluctuations.

Example:

If a stock trades above its highest price of the past 20 days, a long position begins. The logic is simple. If markets move past a recent ceiling, they may continue.

2. Exit Rules

Exits use shorter lookback periods.

System One uses a 10-day low to exit a long position.

System Two uses a 20-day low.

The idea is to let the trend run but leave when the trend breaks.

3. Position Sizing

This is the heart of the turtle trading strategy.

Dennis did not want traders to bet randomly. He wanted them to size trades based on volatility.

The Turtles measured volatility through a value called N, which tracked average price movements. If the market was volatile, they took smaller positions. If the market was calm, they took larger positions. This kept risk consistent.

Example:

If crude oil moved a lot in recent sessions, the system reduced the position size. If a currency pair moved very little, the system allowed a larger size.

4. Pyramiding Positions

When the trend moved in their favour, the Turtles added new positions. These additions were known as units. They added the extra positions at fixed intervals. This helped them ride strong trends with greater exposure without taking large initial risks.

Example:

Price moves one N in their favour. Add one more unit.

Moves another N. Add again.

5. Stop Loss and Risk Control

The system never risked more than a small percentage per trade.

The rules ensured that one single loss never hurt the portfolio.

Each position had a stop loss based on volatility.

Discipline was non-negotiable.

Why Did the Turtle Trading Strategy Work?

The turtle trading strategy worked because it followed trends with full conviction and limited losses strictly. Most markets, especially commodities and futures, go through long directional moves. The strategy captured these moves.

Small losses happened often. The Turtles accepted them without emotion. They knew that one strong trend could cover many small losses. A clear example is helpful here.

Imagine five trades hit a stop loss. Each loss is small. The sixth trade catches a long rally in gold or crude oil. The profit on that one trade is large enough to offset the previous losses and still end with a net gain. This balance is the foundation of trend-following systems.

Rules also removed hesitation. There was no space for doubt. If the breakout triggered, they entered. If the exit triggered, they closed. The system was mechanical so that traders could avoid second guessing themselves.

Is Turtle Trading Still Relevant Today?

Markets today are faster. They have more noise and more algorithmic activity. Some breakouts fail more often. Yet parts of the turtle system still work across global markets. Many modern funds still use trend-following models. They may not use the original rules, but the principles remain the same.

Retail traders can use simplified versions. They can combine breakout rules with modern tools like moving averages or volatility filters. Traders only need to remember that breakouts work best in trending phases. Sideways markets can produce false signals.

The strategy demands patience. It demands emotional control. Anyone who follows it must accept that many trades will fail. The success comes from the few strong moves that run for weeks or months.

Pros and Cons of the Turtle Trading Strategy

Pros

• Rules are simple.
• Clear entries and exits.
• No emotional decisions.
• Works across asset classes.
• Strong risk management structure.

Cons

• Many small losses during sideways periods.
• Requires strong discipline.
• Needs enough capital to follow position sizing correctly.
• Breakouts sometimes trigger late in fast markets.

Example: How Turtle Trading Looks in Real Life

Let us imagine a stock trading near a 20-day high.

Day 1: The price breaks above the 20-day high. A long position begins with one unit.

Day 4: The price continues higher. And the system adds a second unit.

Day 10: The price rises again. Another unit is added.

Weeks later, the stock has moved up steadily.

Finally, the price drops below the 10-day low. The exit rule triggers, and the entire position closes.

The result is a simple trend catch. No predictions. No complicated indicators. Only rules.

Conclusion

The turtle trading strategy remains one of the most famous rule-based systems in market history. It teaches discipline. It teaches risk control. It teaches traders to trust trends instead of emotions. The system may need tweaks for modern markets, but its core logic still works.

The Turtles learnt it in two weeks and traded successfully for years. If beginners could do that decades ago, what could a modern trader achieve with the same discipline and clarity?

Add to that a modern trading platform in Kotak Neo, with just ₹10 brokerage per order on any intraday trades, and you can trade like a pro.

Sources

Investopedia
IG International
Oxford Strat