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Trading idea

Concept of "trading idea". Review of a trading idea under the Turtles strategy

First and foremost, you need a trading idea. A trading idea is a certain way of working in the Forex market supposed to yield profits. There are dozens of worthwhile trading ideas described on the Internet. Some of them are formalized and set out quite clearly, others are only outlined. For example, the widespread ideas of "scalping", "arbitrage", or "channel trading" represent general categories, each of them embracing a multitude of concrete strategies. Each of such a category expresses a general approach to making profits from financial markets, which is common to all or most strategies included therein. That is why such a category (scalping, for example) cannot be regarded as a trading idea.

One of the classic examples of a good trading idea is the Turtles strategy. We are going to use this example to examine the stages of developing a mechanical trading system. However, what we cannot allow ourselves to do in the framework of this introductory course is delve into the stage of realization as this subject requires an independent study.

Our choice of this example is not occasional. The thing is, as a popular version of the origin of this strategy states it, the strategy was supposed to end the dispute relating to whether a trader needs a special talent, God's gift, the sixth sense (market vision) to master the art of trading, or following a certain set of strict rules would be enough.

The essence of this strategy consists in making profits from long-term trends when they take place. For your reference: any market is said to be downwards or upwards for about 35% of time, and to flat for 65% of time. Under the Turtles strategy, a flat period is loss-making, but all the losses incurred during the flat period are offset against a few trades when a certain trend forms, which eventually results in profit. The thing is, the Turtles strategy implied the tough restriction of loss-making positions at the moment when losses were not too big. That's why loss-making trades were not important. At the same time, when a trend was starting to form, the Turtles allowed profit to grow and didn't close a profitable trade if the amount of profit was too small. So we can say that the Turtles strategy puts into practice one of the basic trading rules: "Limit losses and let profits grow!".

Before we move on, let's mention that the Turtles strategy was initially developed for trading futures contracts at the stock exchange, while we will examine it in a context of the Forex market. At the same time, we will allow ourselves to simplify things by omitting some irrelevant details in order not to sidetrack our less educated audience, all the more so because those details can be examined more thoroughly outside this course, if necessary.