Trading Atr

Turtle Trading #3 Markets And Position Sizing

Markets and Position Sizing are pieces of turtle trading system.

The first thing traders have to know is what to buy or sell.

The original turtles were commodities traders. They traded futures contracts on most U.S. commodities exchanges. The primary criterion that the turtles used to determine which markets could be traded was liquidity. Since the turtles were trading millions of dollars, they could not be trade in markets that had low liquidity.

The second piece of a complete trading system is position sizing; the turtles determined the position size for each market on the basis of the amount that market moved up and down each day in constant dollar terms.

To learn the concept of turtles’ position sizing, the understanding of the N factor is essential. N is simply 20-days exponential average of the True Range (ATR).

From:

True Range (TR) = Max (H – L, H – PDC, PDC – L)

Where:

H = Current High

L = Current Low

PDC = Previous Day Close.

So:

N = (19 * PDN + TR)/20

Where:

PDN = Previous Day’s N

TR = Current Day’s True Range

To determine the dollar volatility the following formula is used.

Dollar Volatility = N * Dollars per Point

Then a Unit of position is calculated as follow.

Unit = 1% of Account / Market Dollar Volatility

Example:

If the Crude Oil has a Today’s N = 0.0141. Given the account size $1,000,000 and Dollars per Point is 42,000

The Unit Size = 1% of 1,0000,000 / (0.0141 * 42,000) = 16.88 In real trading the Unit will be truncate to 16 contracts since contract cannot be traded partially.

That is only the first two pieces of turtle trading system. There are still more four pieces covered by turtle trading rules.

About the Author

Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.

If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System

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