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In trading folklore, few stories capture the imagination like that of the original Turtles.

Richard Dennis and William Eckhardt had a widely rumored bet about whether traders were born or could be made. Supposedly the movie Trading Places was based on this rumor.

The interview process for selecting the team is also the source of rumor and legend.

They put together a rule-based, systematic way for their trading team to execute their trades.

The set-up and entry for that system used a very simple breakout concept: Donchian Channels. While the name is impressive, it is quite straightforward: channels are established by the high and low of the last x bars. On a daily chart, a 20 period Donchian Channel would be formed by the highest high and lowest low of the last 20 bars.

In the Turtles system, they simply bought a breakout above the upper channel and sold breakdowns below the lower channel.

The key question is did it work? The answer is that yes, it did work and worked well. Some claim that the original Turtles averaged 80% compounded returns over four years. Rumor has it that, at least in the early going, the experiment made no money because one of the partners insisted on hedging all the positions of the new traders!

Now lets look at our market model questions for the Donchian Channels:

Is it theoretically credible? Yes – trading breakouts has been an age-old method for making money and will always work in trending markets.

Whos it most useful for? Long term trend followers. Could be useful as a stand alone entry in strongly trending markets.

How Fanatic are the fans? Very! There are some websites that make it sound like you would have to be a real loser to trade any other way. The strategy has plenty of detractors as well. Connors and Raschke had a strategy called Turtle Soup that fades or goes against the Turtle entry.

Is it being used by real-life traders? Yes. Plenty of folks still trade this. It works well in trending markets, not so well the rest of the time. Most Turtle followers are using longer time periods for their Donchian Channels now.

Click the Donchian Channels and The Turtle Method header link above to learn more about this trading system and many other successful trading systems. With knowledge, dated goals, a plan of action, and taking action, you can have success in the financial markets.

Good day and good trading.

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