The Turtle Soup Strategy: A Good Trading Method for Beginners
The ‘Turtle Traders’ were a group of individuals trained in the 1980s as part of an experiment by commodity traders Richard Dennis and William Eckhardt. The experiment aimed to settle a debate between the two: Dennis believed anyone could be taught to trade successfully, while Eckhardt thought success was innate. They selected 23 novices through a newspaper ad and trained them in a systematic trading approach, proving Dennis’s theory right as many became successful. The name ‘Turtle Traders’ came from Dennis’s remark about growing traders like turtles are farmed in Singapore.
What is the Turtle Soup trading strategy?
The Turtle Soup strategy is an adaptation by Linda Bradford Raschke, a quite famous trader, of the original Turtle Traders’ methodology. It was developed to identify and capitalize on false breakouts in the market.
False breakouts occur when the price temporarily moves beyond a key support or resistance level but then quickly reverses direction. The Turtle Soup strategy is designed to take advantage of these reversals by entering trades at optimal points just after a false breakout has been identified.
What can you trade with it?
The Turtle Soup strategy can be applied to any currency pair in the Forex market. In general, the strategy’s principles are versatile and can also be used across various asset classes. It is particularly well-suited for trading currencies due to the frequent and often manipulations and sharp price movements, which happen daily throughout the trading sessions.
On what timeframes?
The Turtle Soup strategy is recommended for use on timeframes no less than M15 (15-minute charts) or higher. This is because the strategy relies on the identification of false breakouts, which tend to be more reliable on longer timeframes.
The chosen timeframe will affect only the number of trades you find and the amount of profit you might expect, with higher time frames typically offering more significant opportunities but fewer trades.
How to use the Turtle Soup strategy?
To implement the Turtle Soup strategy, you begin by analyzing the last 20 candlesticks on your chosen chart during consolidation phases (when the price moves sideways). This 20-period range is critical for identifying the high and low levels, which will be used to set your entry and exit points.
Depending on the timeframe you choose, the SL, TP, and stop order levels may vary in size. For example, for the daily chart, you should use a 50 pips range for your Stop-Loss. For the M15 chart – only 3/5 pips distances.
For a ‘buy’ scenario:
- Identify the high and low of the last 20 candlesticks and mark them with horizontal lines.
- Wait for the price to fall below the period’s low.
- Place a ‘buy stop’ order 5 -10 pips above this low (ensuring it is only valid for the current candlestick on higher timeframes).
- Set a SL 5-15 pips below the current minimum price.
- Your TP should be set 5-10 pips below the upper border of the 20-candle range.
For a “sell” scenario:
- Again, identify the high and low of the last 20 candlesticks.
- Wait for the price to break above the range’s high.
- Place a sell-stop order 5-10 pips below the 20-candle high (valid only for the current candlestick on higher timeframes).
- Set a SL 5-15 pips above the current maximum price.
- Your TP should be set 5-10 pips above the lower border of the 20-candle range.
Variation
Additionally, there is a variation called the Turtle Soup + One strategy. It allows to open positions after the breakout candlestick has closed outside the range, potentially offering a more conservative entry point.
Real examples
Let’s take a look at the EURUSD D1 chart. The first serious consolidation appears in the last week of July 2020 (also identifiable through a CHOCH pattern).
Having counted 20 candles, we draw a box, including all of them. The upper and lower edges of the box are the period’s higher high and lower low.
After waiting a while, the price breaks out of the range through the upper path. Following the strategy, we immediately place a ‘sell’ stop order 50 pips under the higher high and a SL 50 pips above the higher high. The TP is set 50 pips above the lower low. The trade plays out profitably.
After a bearish trend move, which caught our Take-Profit, another consolidation appears.
After marking the 20-period box with the same method we wait for a price hint. A false breakout happens first at the upper edge, and we again set a ‘sell’ stop order 5 pips below and an SL above the upper ledge. The TP is yet again 50 pips above the lower edge. We profit again.
Soon after, the price reverses from a false breakout of the lower low. This time we seek the ‘long’ play. The SL 50 pips below the lower low, the TP 50 pips below the previous higher high, and a ‘buy’ stop order 50 pips above the lower low, to open our position.
And again – it’s a profit!
Let’s take a look at how this strategy performs on a EURUSD M15 chart, the minimum required for it to work properly.
On the evening of August 30, 2024, we see a consolidation, so we draw the 20-candlesticks box. After a fake breakout, we place a ‘buy’ stop order 4 pips above the lower edge, the TP and SL also below the lower low and the higher high respectively. The position closes into the profit zone after some additional fluctuation.
At the end of the short uptrend phase that followed, we draw another box, after the price clearly steps into consolidation. Here, after a fake breakout, we set the same 4 pips distance for our SL, TP, and ‘sell’ stop orders. This position also adds to our deposit.
Lastly, we get the chance to enter another profitable short position, after a swingy consolidation on September 4.
Overall, as shown by the examples above, the Risk/Reward ratio is better on higher timeframes, like the daily. On the other hand, more fast-paced charts, like the 15-minute one, offer more trading possibilities and don’t take much time from entry to exit.
If you like this strategy, try it right away on your own on our MetaTrader platform!
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