Lesson of the Day — October 30, 2009
For today’s lesson, I am doing something a bit different. I received a question from a new member, and I thought it was a great example to illustrate how to think when developing a trading plan.
Quote: “I am interested in applying the Turtle’s trading methods to FX, and saw that you are familiar with the Turtle trading methodology. If you have the time, I’d love to get your opinion on a couple issues:
1. Do you think the Turtle method is profitable?
2. If so, do you think the money management technique of risking no more than 1% of account equity per trade is viable with FX if the initial account size is just $25K?
3. I am thinking of buying an EA for $300 that purports to have all of the rules automated. the website for the EA is Turtle Trading: Automated Forex Software: Home. Have you heard of this EA, and do you have any thoughts about it?”
Is the Turtle method profitable?
It can be. Most methods can be. Most can be, but for most people, most won’t be
I’ll explain-
(If you aren’t familiar with the Turtles, click here to hear Michael Covel talking about the Turtle Traders in a seminar. This is well worth watching if you have not seen it).
First, let me say that the method the Turtle’s used really was not that special. It is not that much different than a lot of trading systems you can find for free these days on the net. These systems are just as good.
Really, the Turtles just used a simple break-out system. They bought when the price broke above a 20 day high, and they shorted when the price dropped below a 20 day low. Pretty common way to enter.
They followed a strict money management system. At the time, most traders had never heard of the idea of money and risk management; the types of things any serious trader now emphasizes. Still, not much different that you can find on many free systems now. Even their method of adding to a winning position is pretty common and widely used.
The success of the Turtles is legendary. However, their system really wasn’t that out of the ordinary (although it was pretty new at the time). Yet, some of them made millions using it after only 4 weeks of training.
This gives what I consider to be an insight to what it takes to succeed, as well as why most traders fail.
There are three aspects to successful trading- Mind, Money, Method.
Mind- Your psychological approach to the markets.
Money- Money management
Method- Your trading system
Most traders focus only on their method and hardly even focus on the other 2. It takes a while for most new traders to even think about using a trading plan. When, they finally do, they usually start out by thinking of a plan as an entry system and focus on that. Most traders never get past the point of spending all of their energy focusing on how to enter.
Many do get to the next step though. They put effort into money management. Most put way too little effort into exploring this area, but they at least get to this level. However, I suggest that we should be putting much if not most of our efforts into the other part- our psychological approach to the markets.
Look at what the Turtles did. Why did they succeed? What did they do right? They had very little training- just 4 weeks. They followed a good plan. They kept it simple. They followed a good money management system. Still, you can find all of this on a lot of plans now these days. So what was different?
People sometimes forget that only some Turtles were successful, and others were not. Well, that’s odd isn’t it? They all got the same training. They all followed the same plan. They all bought the same commodities. They all followed the same money management plan. They all did the same thing. Yet, some made millions and some failed and were fired.
Why didn’t they all make money? They were all following the same plan, and all doing the same thing with the same size accounts. Why didn’t they all at least come out profitable? How can it be that 2 people follow the exact same trading plan, and one makes millions and the other fails and gets fired? What was different between the Turtles that failed and the ones that succeeded?
The ones that failed could not over come their own subconscious biases that we all have. Fear, greed, the need to be right- these just touch the surface. We bring a whole slew of mental and emotional biases that we must overcome, control, or somehow work with to be successful. Trading is more psychology than it is chart patterns and indicators.
The reason why some turtles made money is inside they allowed themselves to be successful.
So there it is- spend time more time focusing on your mind- Your psychological approach to the markets. That’s where the winners and losers part ways.
Quote: “If so, do you think the money management technique of risking no more than 1% of account equity per trade is viable with FX if the initial account size is just $25K?”
Yes, but trade mini contracts ($1 per pip) not full size .
Quote: “I am thinking of buying an EA for $300 that purports to have all of the rules automated. the website for the EA is Turtle Trading: Automated Forex Software: Home. Have you heard of this EA, and do you have any thoughts about it?”
Never heard of it, but my first reaction is to say save your money.
For his question, I am awarding zwinner the 50 points for the day!
Cheers
Tek
About the Author
http://www.informedtrades.com/members/tekmnd/
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