Trader’s Tips

We study the principles of the formation of the Anti-Turtles pattern and build strategies based on it

The simplest strategy based on the principle of “ trend is your friend, trade with the trend ” is a system of turtles. It gained popularity in the 70s of the last century in the stock market (that is, at the time when Forex was just taking its first steps), however, many traders still use the strategy. It is about buying a higher high and selling a lower low. The system is built on the principles of “ buy high and sell even more expensive ” and “ sell cheap, buyback even cheaper ”. The high demand for it is due to the popular approach four decades ago: “entering a position is of secondary importance, the main thing is how you will manage this position.” In this regard, the strategy seems very simple.

Obviously, as the trend fades, the effectiveness of the tactics of turtles decreases. A trader needs to make decisions about what to do with already open positions and does it make sense to enter new ones? It should be understood that the longer the trend lasts, the greater the likelihood of deeper corrections than before. At the same time, the risks of its reversal are growing. As a result, the number of lovers of the principle “who does not risk, does not drink champagne” increases on the market, and they begin to catch falling daggers.

One of the first who came to the conclusion that you can use the system of turtles not for their intended purpose, but when trading against the crowd, was the author of the bestselling book “Stock Secrets” Linda Raschke. In her book, she describes a strategy with the humorous title “Turtle Soup.” First, you need to identify the trend. In a bullish trend, the market should make at least a 20 bar high (point 3). The previous peak should be at least 4 bars earlier than it (point 1). If these conditions are met, then there is an opportunity for a reversal of the current trend.

After identifying the pattern, the time comes to build a trading strategy. The short position is entered at the moment the quotes return to the maximum mark of bar No. 1 minus a few points. A stop order is set at the maximum level of bar No. 3 plus a few points. Obviously, the system is extremely risky, so the protective stop should be narrow. The trader should understand that if after several stop-mining the market will go in the direction necessary for it, the profit will more than cover all previously recorded losses. Thus, “Tortoise Soup” is a classic version of samples, a trading system, where the probability of losses is higher than profit, however, it still brings income.

Regarding the exit from the transaction, Linda Raschke recommends a temporary approach (closing a position occurs 2-3 bars after entry) or using a floating stop order. Given the diversity of modern techniques, it is possible to use both a multiple of R and rebound from diagonal support and other approaches.

Entrance to the position can be carried out not only during the formation of bar No. 1 but also at the next bar. Linda Raschke called this strategy Turtle Soup + 1. In the Australian dollar example below, a position is closed if a target is reached for one of the patterns of harmonious trading.

The author of “Market Secrets” is far from the only trader to use the Anti-Turtles pattern (“against turtles”) in his trade. It was used by such celebrities as Larry Williams and Victor Sperandeo. We will talk about this and other features of the model in subsequent materials.

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