Trading strategy: Turtle Soup

Description of the Turtle Soup strategy

The Turtle Soup strategy was developed by trader-author Linda Bradford-Raschke and published in her book Street Smarts: High Probability Short-Term Trading Strategies. The strategy’s name is a reference to a well-known strategy called Turtle trading. This strategy was taught by Richard Dennis and William Eckhardt in the 1980s to a group of novice traders called the Turtles. Linda Bradford-Raschke inverts the reasoning behind the Turtle strategy in order to develop a short-term trading method.

Designed for	: Forex (EUR/USD, GBP/USD, EUR/CHF...)
Instruments	: Forex and Forex Futures
Trading type	: Day trading
Trading tempo	: 2-3 signals per day on a 30' chart
Using NanoTrader Full	: Manual and (semi-)automated
Budget	: FREE trading strategy in NanoTrader

The trading strategy in detail

The Turtle strategy designed by Dennis and Eckhardt is a trend-following strategy. Trend-following strategies typically have a low percentage of winning trades (<50%, usually around 40%). The profits on the winning trades are, however, sufficient to make up for the losing trades and then some.

Trend-following strategies, given their low percentage of winning trades must, per definition, have a high amount of false breakouts and short-term reversals. Linda Bradford-Raschke wanted to develop a strategy which benefits from false breakouts and short-term reversals. This would, in her opinion, result in a high-probability strategy. The result was the Turtle Soup strategy which, in a way, is the Turtle strategy turned on its head.

The Turtle Soup strategy is applied to forex pairs on 30-minute charts.

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When to open a Turtle Soup position?

A buy signal is given when the market price hits a 5-period low. A short sell signal is given when the market price hits a 5-period high. The positions are opened at the close of the 30-minute period. The Turtle Soup trading strategy, however, does not react to every signal all the time. It uses a signals filter and a time filter.

The signals filter

The signals filter consists of two exponential moving averages (EMA), a fast EMA and a slow EMA. When the fast EMA lies above the slow EMA only buy signals are accepted. When the fast EMA lies below the slow EMA, only short sell signals are accepted.

The time filter

The time filter block all signals outside the period 06h00- 22h00.

When to close a position?

The Turtle Soup strategy uses a profit target and a stop loss.

The stop loss

The stop is a fixed stop. The stop is calculated by NanoTrader as 3x the 20-period ATR (Average True Range). This stop is far from the market price. It can be considered an emergency stop, which will rarely be hit.

The profit target

Positions are also closed when the market price reaches a 5-period high or low. To be precise, a long position will be closed when the market price hits a 5-period high. A short sell position will be closed when the market price hits a 5-period low. Open positions are closed at the close of the 30-minute period.

This example shows two buy signals. The buy signals are accepted because (1) the signals filter is positive (green background) and (2) the signals appear within the 06h00-22h00 time interval. The signals are 5-period lows. The first long position is closed with a profit when the first 5-period high appears. The second long position hits the fixed stop (red line) and is closed with a loss.

Trading strategy:Turtle Soup.

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This example shows two buy signals. The buy signals are accepted because (1) the signals filter is positive (green background) and (2) the signals appear within the 06h00-22h00 time interval. The signals are 5-period lows. The first long position is closed with a profit when the first 5-period high appears. The second long position is also closed with a profit when the first 5-period high appears.

The Turtle Soup free trading strategy.

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This example shows a short sell signal. The short sell signal is accepted because (1) the signals filter is negative (red background) and (2) the signal appears within the 06h00-22h00 time interval. The signal is a 5-period high. The position is closed with a very small profit when the first 5-period low appears.

Free trading strategy for forex: Turtle Soup.

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The Turtle Soup strategy designed by trader Linda raschke.

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Is this trading strategy profitable?

These screenshots show long term back-tests for several currency pairs. The percentage of winning trades is around 60% for all currency pairs. For the forex pair GBP/USD the percentage is, for example, 60,5%.

The result on the EUR/USD forex pair.

The result on the EUR/GBP forex pair.

The result on the EUR/CHF forex pair.

The result on the EUR/JPY forex pair.

Conclusion

The Turtle Soup trading strategy delivers what its author, Linda Bradford-Raschke, set out to create: a strategy based on a trend-following approach but which only trades on false break-outs (i.e. when it appears the trend has changed) and short-term reversals. These are the movements the strategy tries to benefit from. The back-tests appear to give steady results on the currency pairs tested.