Altucher J. Trade like a hedge fund: 20 successful uncorrelated strategies & techniques to winning profits
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The Slow Turtle 87
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FIGURE 7.2 S&P 500, 1987–2003.
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Looking at Figure 7.5 (see page 92), an analysis of the maximum ad-
verse excursion (the amount a trade went negative before closing out), the
light gray trades represent the trades that eventually were closed out as
profitable trades but underwent a drawdown in the process. One trade was
as much as 40 percent down before returning to profitability, and 17 trades
were between 20 percent and 40 percent down before returning to prof-
itability. We can see in the results that the maximum drawdown from peak
to low was slightly over 58 percent. Nevertheless, this system greatly out-
performed the market from 1998 to 2003 and was able to benefit massively
during extreme bull market moves. Again, having a trend-following system
in your arsenal is an important weapon in addition to the various coun-
tertrend systems we have demonstrated in this book.
88
TRADE LIKE A HEDGE FUND
TABLE 7.2 Trades for Slow Turtle on S&P
Entry Exit %
Position Symbol Shares Entry Date Price Exit Date Price Change
Long ^SPX 3,929 8/4/1952 25.43 6/15/1953 23.62 –7.12
Long ^SPX 3,868 1/25/1954 25.93 2/18/1957 43.46 67.61
Long ^SPX 2,118 5/27/1957 46.78 9/30/1957 42.42 –9.32
Long ^SPX 2,227 6/30/1958 45.24 5/2/1960 54.13 19.65
Long ^SPX 1,740 6/20/1960 57.16 8/8/1960 55.52 –2.87
Long ^SPX 1,764 8/15/1960 56.61 9/26/1960 53.06 –6.27
Long ^SPX 1,720 1/3/1961 57.57 6/4/1962 59.12 2.69
Long ^SPX 1,508 2/4/1963 66.31 6/20/1966 86.51 30.46
Long ^SPX 1,124 3/13/1967 88.89 7/22/1969 94.95 6.82
Long ^SPX 1,085 1/4/1971 92.15 6/11/1973 107.03 16.15
Long ^SPX 1,104 5/12/1975 90.53 5/31/1977 96.27 6.34
Long ^SPX 1,024 7/17/1978 97.58 9/28/1981 112.77 15.57
Long ^SPX 748 10/18/1982 133.59 6/18/1984 149.03 11.56
Long ^SPX 596 8/27/1984 167.51 12/7/1987 223.98 33.71
Long ^SPX 359 10/10/1988 278.06 9/24/1990 311.3 11.95
Long ^SPX 270 2/19/1991 369.06 12/11/2000 1,369.89 271.18
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The Slow Turtle 89
TABLE 7.3 Simulation of Slow Turtle on NAS 100 Stocks
(1997–2003)
All Trades
Starting Capital $1,000,000.00
Ending Capital $5,423,025.50
Net Profit $4,423,025.50
Net Profit % 442.30%
Exposure % 91.32%
Risk-Adjusted Return 484.34%
All Trades 213
Average Profit/Loss $20,765.38
Average Profit/Loss % 85.84%
Average Bars Held 59.24
Winning Trades 107 (50.23%)
Gross Profit $6,383,812.50
Average Profit $59,661.80
Average Profit % 193.19%
Average Bars Held 80.11
Maximum Consecutive Winning Trades 14
Losing Trades 106 (49.77%)
Gross Loss ($1,960,787.38)
Average Loss ($18,497.99)
Average Loss % –22.52%
Average Bars Held 38.18
Maximum Consecutive Losing Trades 13
Maximum Drawdown –58.44%
Maximum Drawdown $ ($6,169,147.50)
Maximum Drawdown Date 9/17/2001
Recovery Factor 0.72
Profit Factor 3.26
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90 TRADE LIKE A HEDGE FUND
FIGURE 7.3 Portfolio equity curve.
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The Slow Turtle 91
FIGURE 7.4 Annual returns.
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92 TRADE LIKE A HEDGE FUND
FIGURE 7.5 Maximum adverse excursion.
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A Basket of Uncorrelated Stocks
Let us do a similar analysis on a basket of stocks that are largely uncorre-
lated: two technology stocks (MSFT and INTC), two utilities (ED and SO),
two commodity stocks (NEM [gold] and PAAS [silver]), and two industrials
(AA and MMM). Using 30 percent of equity per trade, we get annual returns
as shown in Figure 7.6 and Table 7.5. Using uncorrelated assets, even on a
basket with only eight assets, is enough to significantly smooth out returns,
particularly in bearish periods in the markets.
The Slow Turtle 93
TABLE 7.4 Annual Returns for Slow Turtle on NASDAQ 100
Stocks
% Maximum
$ Return % Return DD Exposure
1997 128,279.75 12.83 –7.18 58.92
1998 790,990.50 70.11 –27.27 97.45
1999 5,539,361.00 288.62 –15.72 98.68
2000 –2,028,572.00 –27.2 –49.43 94.97
2001 433,967.50 7.99 –21.69 90.35
2002 –953,636.00 –16.26 –21.92 86.32
2003* 512,632.00 10.44 –8.98 90.43
*Only until June 2003.
TABLE 7.5 Annual Returns Using Slow Turtle on Basket of Uncorrelated Stocks
% Maximum
Period Starting $ Return % Return DD Exposure
4/22/1996 282,569.38 28.26 –2.19 29.3
1/6/1997 201,998.25 15.75 –11.91 76.96
1/5/1998 468,115.38 31.53 –6.8 55.74
1/4/1999 112,452.25 5.76 –13.91 66.15
1/3/2000 36,308.50 1.76 –33.53 67.09
1/2/2001 329,090.25 15.66 –6.33 69.04
1/7/2002 –12,389.75 –0.51 –18.54 68.78
1/6/2003* 256,371.75 10.6 –4.41 82.01
*Through June 2003.
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94 TRADE LIKE A HEDGE FUND
FIGURE 7.6 Annual returns.
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OTHER VARIATIONS
There are many different variations on the Turtle system. A few of them are:
• Using a different type of moving average. The simple moving average
(SMA) tends to identify trends a bit slowly. The exponential moving av-
erage or weighted moving average weights current data higher than
older data and will signal a trend sooner than the SMA. That said, they
are also prone to more whipsawing. If you are of the rocket scientist
sort, you can play with the mesa adaptive moving average developed by
John Ehlers and discussed in his book Rocket Science for Traders
(Wiley, 2001).
• Pyramiding bets. The original Turtle system places some emphasis on
money management, in particular, being able to pyramid the bet as the
trend keeps moving in the original direction. Since a trend-following
system is but one component of my trading, I do not feel pyramiding is
necessary. Also, the volatility in today’s markets is such that the draw-
down potential is beyond immense if one is pyramiding bets. It is a
guarantee that your largest loss will also be your last.
• Buying on a breakout of a recent high. Rather than using a moving av-
erage crossover, you can also buy the market on a breakout of a recent
high. For instance, buy a breakout of a 20-bar high plus some multiple
of the ATR (average true range).
Just as an aside, it is interesting to see what types of assets tend to
trend. For instance, Figure 7.7 shows the federal funds rate from June 1987
to April 2003.
CONCLUSION
I have seen variations of the turtle system printed on various Web sites
claiming to have the original Turtle system. It is a worthwhile exercise to
test this system and its variants on stocks and confirm for yourself that they
do not work. Note, however, that the Turtle system defined in this tech-
nique captured the tops and bottoms very nicely.
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FIGURE 7.7 Federal fund rate, weekly chart from June 1987 to April 2003.
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