In this exclusive video located in the INO TV vault, Russell Sands, one of Dennis’ and Eckhardt’s former students – reveals how the “Turtles” were taught to use technical analysis to define and exploit trends in the futures markets. More importantly, he explains why the trend-following system the Turtles learned years ago can continue to work for you well into the future.

If you’d like to gain access to this same trading library for free, which has a number of videos on psychology, options and system trading, to name a few, go here.

What I learned from the best trader in the world

The professions that correlates with trading the best is a gambler because the focus on money management and continuously calculates probabilities.

What you need to be successful in trend following

  • Discipline
    • Take every signal, no second guessing
  • Common Sense
  • Ability to learn with an open mind
  • Average intelligence

Understanding the rules to trend trading is easy, having the discipline to follow them is hard. Not having an ego, not trying to outsmart the markets, and not trade too big are other reasons traders struggle with system trading.

Causes of psychological instability:

  • Losing money ever day for a week can be frustrating and cause you to second guess yourself
  • A series of successful trades that causes you to trade too big, become cocky, or get sloppy
  • 3 things that will cause you to become destabilized
    • Making a lot of money
    • Losing a lot of money
    • Breaking even

Definition of a Trend

  • Random drift with a bias
  • Most markets trend 15-20% of the time
  • 80% of breakouts fail
  • You only need to catch a few good trends each year to make all your money
  • A body in motion tends to stay in motion

Markets can only do 2 things, they can trend…or they can go sideways. Most of the time they’ll go sideways.

  • The longer a market has been in consolidation mode, when the trade breaks out from that area, the better that trade is going to be.
    • More often you have false breakouts, but when the valid breakout happens, the more explosive the move will be.
  • The longer a market has been in a trend, when the trend is over, the more abusive the consolidation will be.

When a Trade Goes Your Way, When Do You Exit?

  • Never have profit targets
  • Utilize stops when you’re wrong
  • Only sell when overall market turns lower
  • Picking tops/bottoms is a losers game

Why do 80-90% of traders lose money?

  • It is far easier to funnel a vast amount of money from the masses to a few winners than for a few people to give out money to the majority.
  • Any given game there are few winners
  • So knowing that statistic, do you want to be in the majority or minority?
    • “Do the hard thing” ~Richard Dennis

There is an important difference between being reactive and predictive. Trend traders never say “I think that market is going up so I’m going to buy it”. They buy when it goes up.
“The price is always right.”

On gaps…

  • Usually gaps in the direction of the trend are larger than gaps that go against the trend.

On risk

  • Never risk more than 2% on one single trade, if you do you have a high risk of ruin
  • If you do risk > 2%, you have a higher % relative return

Why will trend following always work?

  • The playing field is growing faster and larger every year
  • There are always people with different methods/ideas willing to take the opposite trade
  • Not everybody’s definition of trend following is the same

Breakout (Daily Chart)

  • Price goes higher than the previous 20bars
  • 30d highs are better than 20days
  • 50d highs are better than 30days, etc
  • When multiple points are taken out at once, even better
  • If you buy the 20d breakout, sell on a 10d low penetration – make sure your stops are a shorter duration than your buy criteria.
  • Closing prices are not significant. It can go above/below key range anytime throughout the day

Money Management

  • Never average down, only pyramid up
  • If buying 20d breakout, you can add at 30d, 50d, etc
  • It’s very hard to trade with money you can’t afford to lose as it will effect your judgement

*For every percent of profits you achieve on a good trend, assume there is going to be one week of consolidation when that trend is over.

*Potential filters

  • After a profitable trade, one could consider avoiding the next few trades (however that opens a system up to discretion, and allows you to make a type 2 trade error (missing out on a big trend)).

One suggestion for creating your own strategy

  • Take a particular strategy that isn’t working, and do the opposite

In conclusion, one thing that I learned after listening to this interview is while I consider myself a trend trader, by the above definitions gave by Mr. Sands, I am not a purist. My main difference is how I scale out of positions in an effort to maximize my gains. While I totally agree with him when he says you can’t pick a top, that is the very same reason I often will scale out is I don’t want to give back a large portion of my gains.

I would also suggest to those who want to start to develop your own trend trading strategy is to use parameters that are completely different than the norm. Instead of using a 20 day breakout like he suggests, or a 30….mix it up a little bit and use a 24, or a 33. Any edge that can separate you out of the herd so your stops don’t get taken out. As a reminder you can find more free interviews and educational videos here.

Related Posts:

How to Create Your Trading Edge

The Path to Greatness

Trader’s Highs and Lows

One Response to “Trend Following Lessons From Russell Sands”

  1. Joshua Says:

    The turtles often traded just commodity and index futures, however, applying the same rules to specific stocks can also yield a great return. By limiting your universe to the best stocks only (high relative strength, high earnings, and other statistics), you can apply the same rules for phenomenal returns, buy have more opportunities and use less leverage.

Leave a Reply

You must be logged in to post a comment.