Ultimate Algorithmic Trading System

CHAPTER 3
Complete Trading
Algorithms
We ended the last chapter discussing one of the most famous trading algorithms
of all times. Figure 3.1 is a flowchart I used to program the famous
algorithm many years ago. The flowchart looks extremely complicated, but keep in
mind the complete Turtle system includes two trading systems, money management,
and a simulated trading module. If you break down the flowchart into its components,
you will see that it is not as complicated as it seems. Most of the calculations in
the Turtle system are used to determine market risk, capital allocation, market
selection, and position sizing. All these components are quite important, but the
meat of the diagram and the system are the two trading entry/exit algorithms and
the switch that determines which system is applied. Let’s go right to the heart of the
Turtle by breaking just the trade entry/exit algorithms out of the complete model.
The other components will be discussed a little later.
The first of the two entry/exit algorithms, let’s call it System 1, is the shorter-term
entry technique and is based on a very simple technique. Basically, it will buy/sell
short on a 20-day Donchian breakout and exit the trade by risking whichever is
closer: a 10-day Donchian breakout or a maximum of 2 percent of capital. System 1
(Box 3.1) can trade quite frequently in a choppy market. This type of start and stop
can lead to a long list of losses. This choppiness can be very devastating to a trader’s
account and psychology. Richard Dennis tried to help alleviate this by implementing
a trade filter. The Turtles were instructed to skip System 1 entries if the last trade
was a winner. If the last trade was a winner, then the next trade is not ‘‘actually’’
executed but it is simulated. In other words, the trader would paper trade the
system until a loss occurs.
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The Ultimate Algorithmic Trading System Toolbox + Website: Using Today’s Technology to Help You Become a Better Trader. George Pruitt
© 2016 by George Pruitt. Published by John Wiley & Sons, Inc.
www.rasabourse.com