Turtle trading strategy

This well-known strategy was developed in 1980s by Richard Dennis and William Eckhardt. The rules are relatively simply: buy a stock when its recent closing price is the highest of the past N days and sell it when the recent closing price is the lowest of the past M days. In other words, this is a breakout strategy that can be expected to perform well in a rising market.

Of course, we can try to use different values of N and M and in the following I will use N = 40, M = 20. We can also try to try with some others values but I will skip it in the present analysis.

The strategy was developed many years ago and it was said to perform well at that time. In my research, I tried to check how the performance has been recently, in the past years.

At first, we will test that stocks that are currently in S&P 500 index. We will select stocks in which the price is larger than 20 USD but less than 500 USD. The trading volume has to be at least 100 000. Here are some selected results (using NinjaTrader software using data from Kinetick)

Profit factor 1.26
Max. drawdown -43.69%
Number of trades 15140
Percent profitable 42.29%
Average trade 1.47%
Ratio win/loss 1.77
Average time in market 74 days

Now, let us do the same for stocks from Russell 3000 index. The results are as follows:

Profit factor 1.14
Max. drawdown -44.75%
Number of trades 42837
Percent profitable 39.80%
Average trade 1.22%
Ratio win/loss 1.78
Average time in market 74 days

The results are positive, but the maximum drawdown is large. The number of profitable trades is low (less than 50%) even though the win/loss is high so that generally we should win. This is typical for trend-following strategies.

It is possible to introduce different modifications to this strategy, e.g. do not enter if the previous trade was a winner, add a stop-loss etc. This I did not try.