The building of mechanic trading system requires more than just one idea. It may be enough for introduction of so-called "intuitive trading". But it requires the gift and, of course, well-developed intuition. It should not be denied that there are people with such abilities. But we do not take this variant into consideration. We will describe here the things that are connected with building of mechanic trading system, that will follow strictly to certain rules.
The rules of trading system should be simple and understandable: available for formalization and exposition in one programming language. The definition of complex of such rules will be the formalization of trading system. All together these rules should give strict, accurate and informational answers to the following questions:
- What financial instrument should be chosen for trading (the building of a backlog, diversification)?
- What volume should have each transaction (the size of the position)?
- What conditions are required to open the positions (the conditions of enter)?
- What level is needed to leave the loss position (stop-loss)?
- What level is required to leave the profit position (take-profit)?
- What methods should be used to open and close the positions (by pending order or the market)?
The systems that have answers to these questions are considered to be "full" systems.
Let us formalize the Turtle trading strategy using following rules (it is noted, that the original description of Turtle trading system is a little bit more difficult and can get a beginner confuse):
- There are seven currency pairs should be used, that make part of "Majors" group, including EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, NZDUSD, USDCAD.
- Each transaction margin should be equal to 1% of deposit. Rounding to 0.01 lot.
- The opening of the position should be made with the exceeding (at least to one point) of the maximum level (buying) ir minimum level (selling) within last 20 hours.
- The closing of position with loss should be made after reaching the loss equal to 2% from the current deposit.
- The closing of the profitable position should be made after exceeding the size of floating profit by 2% - after reaching 10-hours minimum (for the buying position) or 10-hours maximum (for selling position).
- The opening and the closing of positions should be made by pending orders: buying - buystop, selling - sellstop, quiting - stoploss.
In our small (very simplified) complex of rules we do not regard the moments, that are connected with "resupply" (increase of volume of the position in case of movement of the market in desirable direction), and also some other moment, that we consider to be insignificant ones. Also the primary Turtle system was meant for a longer time interval.
Let us leave comments for each rule.
The usage of several currency pairs will permit to reach two goals. Firstly, it is a diversification (distribution of deposit between several instruments with the goal to minimize risks and optimize profit). Secondly it increases chances to "catch" the trend: meanwhile one instruments will fluctuate in the flat, the other may make part of the trend.
Singling out the separate small volume for the transaction allows to exclude practical possibility to lose the whole deposit (it will need a big quantity of transactions one after the other). It is necessary to open a transaction with 1000 dollar deposit using the volume equal to 0.01 of lot (marginal deposit for 1:100 leverage in this case $10, i.e. 1% of deposit).
Speaking about the level breaking, there are different rules in different systems, that allow to identify the break. The case is that it is useful to decrease the quantity of system reactions for so-called "false breaks" - when the price breaks the channel position for some time, and then returns. However it will make the system more difficult. In our case we will not add additional rules of filtration of false breaks, we will count that any increase of price limit of the channel for at least 1 point is a break and it should initiate a transaction.
The price of one standard point in case if the volume of transaction will make 0.01 of lot, will be equal to $0.1 (10 cents). It means that 200 point loss ($20 or 2% of deposit) requires the closing of transaction using stop-loss.
When the price starts moving in favorable direction (for buying transaction - it is the growth, and for selling transaction it is a decrease), then we start gradually to move stop-loss, setting it every our at corresponding 10-hours minimum (for buying transaction) or 10-hours maximum ( for selling transaction).
The usage of pending orders for opening and closing of the position will increase the accuracy of rule following, avoiding losses with the help of quoting.