Studying the principles of the Anti-Turtles pattern formation and building strategies based on it

The simplest strategy based on the use of the principle "trend is your friend, trade with the trend" is the turtle system. It gained popularity in the 70s on the stock market (i.e. when Forex was only taking its first steps), nevertheless many traders still use the strategy. It's about buying a higher high and selling a lower low. The system is built on the principles "buy expensive, sell even more expensive" and "sell cheap, buy even cheaper". Its popularity is due to the approach  that was popular four decades ago: "entry into the position is of secondary importance, the most important thing is how you manage this position". In this regard, the strategy seems very simple.

Turtles in the daily EUR/USD chart


Obviously, as the trend fades, the effectiveness of the turtle tactics is reduced. The trader needs to decide what to do with the already open positions and whether it is reasonable to enter into new ones. It should be understood that the longer the trend lasts, the greater the probability of corrections deeper than earlier. At the same time, the risks of its reversal are growing. As a result, the number of fans of the principle "no risk - no gain" is growing in the market, and they start catching the falling daggers.

One of the first to come to the conclusion that you can use the turtle system not for its intended purpose, but rather for trading against the crowd, was the author of the bestseller Secrets of Top Trading Performance Linda Raschke. In her book, she describes the strategy with a 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 before it (point 1). If these conditions are met, then there is an opportunity for a reversal of the current trend.

Formation of the pattern underlying the Turtle Soup strategy in the daily EUR/USD chart


After identifying the pattern, it's time to build the trading strategy. A short position is entered at the time of the return of quotations to the highest mark of the bar number 1 minus several points. The stop order is set at the high of the bar number 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 activations of the stop order, the market goes in the desired direction, then the profit will more than cover all previously suffered losses. Therefore, Turtle Soup is a classic version of a testing system - a trading system, where the probability of losses is higher than the profit, nevertheless, it still brings revenue.

As for the exit from the position, Linda Raschke recommends a time approach (the position is closed 2-3 bars after the entry) or using a floating stop order. Given the variety of modern techniques, you can use divisible R, a break from diagonal support, or other approaches.

Turtle Soup strategy in the daily EUR/USD chart
    

The position can be entered not only during the formation of the bar number 1, but also at the next bar. Linda Raschke named this strategy Turtle soup +1. In the example below with the Australian dollar, the position is closed, provided that the target is reached in one of the harmonious trade patterns.

Turtle Soup + 1 strategy on the 4-hour AUD/USD chart


The author of Top Trading Performance is not the only trader using the Anti-Turtles pattern in their trading. It was used by such celebrities as Larry Williams and Victor Sperandeo. This and other features of the pattern will be discussed in subsequent materials.

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Price chart of EURUSD in real time mode

Turtle soup: trading against the crowd

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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