Turtle Soup Pattern | Trading Strategy (Setup & Exit 1)

I. Trading Strategy

Developer: Laurence A. Connors, Linda B. Raschke (Turtle Soup Pattern). Source: Laurence A. Connors, Linda B. Raschke (1995). Street Smarts | High Probability Short Term Trading Strategies. M. Gordon Publishing Group, Inc. Concept: Trading strategy based on false breakouts (The Turtle Soup Pattern trades against the Turtle Trading System). Research Goal: Performance verification of the pattern setup and trailing exit. Specification: Table 1. Results: Figure 1-2. Trade setup: Long Trades: The market makes a new 2o-bar low (new breakout). The previous 20-bar low (old breakout) has been made at least 3 bars earlier. The close of the current 20-bar low (new breakout) must be at or below the previous 20-bar low (old breakout). Short Trades: The market makes a new 2o-bar high (new breakout). The previous 20-bar high (old breakout) has been made at least 3 bars earlier. The close of the current 20-bar high (new breakout) must be at or above the previous 20-bar high (old breakout). In the sensitivity test, the default value “20-bar” is replaced by an interval “Channel_#1” (Table 1). Trade Entry: Long Trades: A buy stop is placed the next bar after the setup at the previous 20-bar low (old breakout). Short Trades: A sell stop is placed the next bar after the setup at the previous 20-bar high (old breakout). In the sensitivity test, the default value “20-bar” is replaced by an interval “Channel_#1”. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.

Tested Variables: Channel_#1 & Channel_#2 (Definitions: Table 1):

Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY	SPECIFICATION	PARAMETERS
Auxiliary Variables:	UpperChannel(Channel_#1) is the highest high over a period of Channel_#1. LowerChannel(Channel_#1) is the lowest low over a period of Channel_#1. UpperChannelExit(Channel_#2) is the highest high over a period of Channel_#2. LowerChannelExit(Channel_#2) is the lowest low over a period of Channel_#2.	Channel_#1= [10, 100], Step = 2; Channel_#2= [1, 40], Step = 1;
Setup:	Long Trades: The market makes a new low and breaks below the  LowerChannel(Channel_#1). The previous breakout has been made at least 3 bars earlier. The close of the new breakout must be at or below the previous breakout level.  Short Trades: The market makes a new high and breaks above the UpperChannel(Channel_#1). The previous breakout has been made at least 3 bars earlier. The close of the new breakout must be at or above the previous breakout level.
Filter:	N/A
Entry:	Long Trades: A buy stop is placed the next bar after the setup at the previous breakout level. Short Trades: A sell stop is placed the next bar after the setup at the previous breakout level.
Exit:	Quick Exit: Long Trades: A sell stop is placed one tick below the Low[j-1]. Short Trades: A buy stop is placed one tick above the High[j-1]. Index: j ~ Entry Bar. Channel Exit: Long Trades: A sell stop is placed one tick below the LowerChannelExit[i-1]. Short Trades: A buy stop is placed one tick above the UpperChannelExit[i-1]. Index: i ~ Current Bar. Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop].	ATR_Length = 20; ATR_Stop = 6;
Sensitivity Test:	Channel_#1 = [10, 100], Step = 2 Channel_#2 = [1, 40], Step = 1
Position Sizing:	Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20
Data:	42 futures markets; 32 years (1980/01/01−2011/12/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Tested Variables: Channel_#1 & Channel_#2 (Definitions: Table 1):

Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).

IV. Rating: Turtle Soup Pattern | Trading Strategy

A/B/C/D

Related Entries: Turtle Soup Pattern (Setup & Exit 2) | False Breakout (Setup & Exit 1) | False Breakout (Setup & Exit 2)
Related Topics: (Public) Trading Strategies

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

Codes: matlab/turtle-soup/