The full rules from 1983, worked through on one trade, and an honest look at what has changed since

Published: 17 October 2026 · Last updated: 7 October 2026 · By Spencer Li, CFTe

In 1983, commodities trader Richard Dennis made a bet with his partner William Eckhardt. Dennis believed trading could be taught, and Eckhardt was not so sure. So Dennis hired a group of beginners, trained them for about two weeks, gave them real money, and called them his Turtles.

The rules they were taught are simple enough to fit on a few pages. The Turtles bought when a market broke above its highest price of the past 20 or 55 days, and sold short when it broke below the lowest. They sized every position by how much that market normally moved, so that one day’s typical move cost about 1% of the account. They cut losers at a fixed distance, added to winners in small steps, and exited only when price broke back through a 10 or 20-day low.

Do the rules still work? The slower version has held up far better than the fast one, and the original 20-day signal faded within a few years. Almost every writer who studied the system agrees its real strength was the position sizing. Here is the whole system in four parts: how they sized, entered, added and exited.

Where do the turtle trading rules come from?

The rules most people quote come from a document called The Original Turtle Trading Rules, published in 2003 by Curtis Faith, one of the original Turtles. It is still free online, and it is the closest thing we have to a primary source.

The story itself has some fog around it. Eckhardt, asked about the bet in a 2011 interview, said: “Various eyewitnesses to this episode disagree.” He added a detail most retellings skip. More than half the course, he said, “revolved around developing the right attitude, guarding against debilitating emotions, how to think about risk.” And then: “Teaching the turtle system itself doesn’t take very long.”

Keep that in mind as you read the rules below, because by his account they took the least time to teach. If you want the man behind the experiment, our post with Richard Dennis’s trading tips covers his story and his best-known quotes.

Size: how did the Turtles size a position?

Everything starts with a number they called N. N is the average daily range of a market over the last 20 days, which most traders today know as the average true range, or ATR. Faith’s rules smooth it a little each day, but the idea is the same.

Then comes the unit. In Faith’s words: “Units were sized so that 1 N represented 1% of the account equity.” In plain terms, a unit is however many shares or contracts it takes for one normal day’s move to cost you 1% of your account. A calm market gets a bigger unit, and a wild one gets a smaller unit, so every position carries roughly the same risk.

There were limits on how much the Turtles could hold at once:

• 4 units in any single market
• 6 units in closely correlated markets
• 10 units in loosely correlated markets
• 12 units in one direction, long or short

And there was a rule for bad runs. Each time the account fell 10%, the Turtles traded as if the account were 20% smaller. That rule shrinks your bets exactly when you are most likely to be wrong about your system. Our post on risk of ruin shows what that does over a long run.

Enter: what were the System 1 and System 2 entry rules?

The Turtles traded two systems, and the table below sets them side by side.

The skip rule in System 1 confuses most people. Faith’s rules counted the last breakout as a loser if price “moved 2N against the position before a profitable 10-day exit occurred.” The idea was that a breakout right after a winning one was more likely to fail. But skipping risked missing a huge trend, which is why the 55-day breakout stayed as a backstop.

The Turtles entered the moment price traded through the level, without waiting for the close.

If you want a daily routine that keeps your own entries planned instead of rushed, our free 15-Minute Swing Trader’s Checklist walks through it. Get the free checklist →

Add: how did the Turtles add to winning trades?

They added one unit at a time as price moved their way, every half N, and moved the stops on all earlier units up so the whole position sat 2 N below the latest entry.

A trader on an algorithmic trading forum was coding the rules and wrote: “The part I am struggling with in understanding N and risk and position size.” It is the most common confusion, so here is one trade worked in full.

Say a hypothetical USD 100,000 account buys a stock breaking out at USD 100, and N is 2.50.

• One unit: 1% of the account is USD 1,000, and 1,000 divided by 2.50 is 400 shares. That is USD 40,000 of stock, or 40% of the account.
• The stop: 2 N is USD 5.00, so the stop sits at USD 95. If it is hit, 400 shares lose USD 5.00 each, which is 2% of the account.
• The adds: further units go in at 101.25, 102.50 and 103.75, each half an N apart.
• The new stop: with all four units on, every stop moves to 2 N below the last entry, which is 98.75.

Now the part that catches people out. If price falls straight back to 98.75, the four units lose 1.25, 2.50, 3.75 and 5.00 per share. Across 400 shares each, that is 0.5% + 1% + 1.5% + 2% of the account, or 5% in total, rather than 2%. That is the risk of a fully loaded position in one market.

And look at the size. Four units of this stock are worth 160% of the account. The Turtles traded futures, where that kind of exposure takes only a small margin deposit. On ordinary shares bought with cash, you simply cannot follow the rules at full size.

Leave: when did the Turtles exit?

Losers left at the 2 N stop, “each time, every time, without fail,” as Faith put it. Winners left only when price broke back through a 10-day low for System 1, or a 20-day low for System 2.

That exit is the hard part, and Faith says so directly: “Waiting for a 10 or 20 day new low can often mean watching 20%, 40% even 100% of significant profits evaporate.” Most breakouts fail, so most Turtle trades were small losses. The system only worked because the few big trends were held long enough to pay for all of them. Take profits early, and the arithmetic falls apart. Our post on trend following shows why this style feels wrong most of the time, even when it is working.

Do the turtle trading rules still work today?

The slow parts have aged far better than the fast parts.

The fast signal faded first. Van Tharp, writing in 1998, noted that the Turtles started with 20-day breakouts and moved to 40-day ones as the 20-day signal decayed. Perry Kaufman later tested a version of the rules on copper from 1980. The faster system, he found, “shows profits only for the first part of the 1980s, the period in which Dennis would have decided to form the Turtles.” The slower one “shows steady profits for the entire 38 years.”

Costs are the second problem. A trader asked online in late 2025, “Why do breakout strategies collapse after fees?” The honest answer is that a short breakout system trades often and loses often, so every commission and every bit of slippage comes out of a thin margin. That is why a false breakout hurts a 20-day system far more than a slow one.

And the market matters. The Turtles traded a wide basket of futures, from bonds to coffee, which can trend for months. A single stock or a stock index fund does not offer that variety.

What has held up is the sizing. Tharp was blunt. “The success of the Turtles’ trading had much more to do with their position-sizing algorithm, as is usually the case, than it did the fact that they traded a channel breakout system.”

For most traders, that is the lesson worth keeping from the experiment. Sizing every trade by volatility, limiting how much you hold, cutting your size after a losing run and letting winners run are habits that work across almost any system, including a much slower one.

So, if you tried to follow the Turtle rules tomorrow, which part would you break first? Would it be the 2 N stop, the adds, or watching half your profit disappear while you wait for the 20-day low? For more on building a system you can actually follow, see the guide to trading strategies.

FAQ

What are the turtle trading rules?

They are the rules Richard Dennis taught his Turtle traders in 1983. Buy 20 or 55-day breakouts, and size each position so a normal day’s move costs about 1% of the account. Stop out at 2 N, add every ½ N up to 4 units, and exit on a 10 or 20-day reverse breakout.

What is N in turtle trading?

N is the 20-day average true range of a market, a measure of how much it typically moves in a day. It sets both the position size and the stop distance.

Did the turtle traders make money?

Several of the original Turtles went on to long trading careers, and the experiment is widely told as a success. Eckhardt himself noted that eyewitness accounts of the original bet disagree.

Does the turtle trading strategy work on stocks?

The rules can be applied to stocks, but they were built for a broad basket of leveraged futures. On cash stocks, full Turtle size is often more than the account can hold, and a single stock offers less variety of trends.

Where can I read the original turtle trading rules?

Curtis Faith published The Original Turtle Trading Rules free in 2003. His 2007 book Way of the Turtle covers the same rules with more background.

Go deeper

The Turtles proved that rules can be taught, and that following them is the hard part. The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that protect your account.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

The 2 kinds of momentum, the evidence behind them, the weeks when they fail, and a simple 3-step check

Published: 17 October 2026 · Last updated: 13 October 2026 · By Spencer Li, CFTe

A momentum trading strategy buys whatever has risen the most over the past few months and avoids, or sells short, whatever has fallen the most. The bet is that strong prices tend to stay strong for a while, and weak prices tend to stay weak.

It sounds too simple to work, but it is one of the best-tested ideas in finance. Researchers have found it in stocks, bonds, currencies and commodities, across many decades and many countries.

There is a catch, though. Momentum has rare, violent losing streaks, and they tend to arrive just as a beaten-down market starts to recover. The edge also shrinks once trading costs come out. Below are the 2 kinds of momentum, what the research says, and a simple 3-step check.

What are the 2 types of momentum?

The word “momentum” covers 2 different questions, and most confusion comes from mixing them up.

Relative momentum asks: which of these assets has risen more than the others? Academics call it cross-sectional momentum. You rank a group of stocks or funds by their past return and buy the leaders.

Absolute momentum asks: has this asset risen at all? Academics call it time-series momentum. You look at one asset on its own and only hold it while its recent return is positive.

The second kind is close to what our post on trend following describes. And neither kind is the same as a momentum indicator, which measures how fast price is moving on a chart over a few days. A trader can use that indicator without running a momentum strategy at all.

Does momentum trading actually work?

On the long-run evidence, yes, it has.

The modern research starts with a 1993 paper by Narasimhan Jegadeesh and Sheridan Titman, who found that stocks with the best returns over the past 3 to 12 months kept beating the worst ones over the next few months. Critics said they had simply found a pattern by chance. So in 2001 the same authors checked the years after their paper, and reported that “momentum profits have continued in the 1990’s suggesting that the original results were not a product of data snooping bias.”

The absolute kind has similar backing. A 2012 study by Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen looked at 58 futures and currency markets over more than 25 years. They found that “the past 12-month excess return of each instrument is a positive predictor of its future return.” The effect “persists for about a year and then partially reverses over longer horizons.”

That last phrase is worth noticing. Momentum is a medium-term effect. Over the following 4 to 5 years, the 2001 paper found the winners tended to give some of it back.

One practical point surprises most new traders. Most momentum research ranks assets by their total return over a past period, often the last 12 months, leaving out the most recent month. It does not use the RSI or a moving average crossover.

A trader on a swing trading forum learned this the hard way. He screened for stocks above their 20 and 50-day averages with an RSI near 45 to 50, and could not find a single stock in a clear uptrend. That screen is looking for a pullback inside a trend, which is a different job.

If you want a simple daily routine for reading trends before you trade them, our free 15-Minute Swing Trader’s Checklist covers it. Get the free checklist →

How do momentum traders pick what to buy?

There are 2 well-known published approaches, and they come from opposite ends of the market.

Gary Antonacci’s Dual Momentum Investing (2015) uses both kinds together. Relative momentum picks the strongest asset, and absolute momentum decides whether to be invested at all. His argument is that relative momentum alone “raises returns without reducing risk,” because it still buys the best of a falling group. Adding the absolute check is meant to move the money to bonds when even the leader is losing to Treasury bills.

William O’Neil, who built a long career on stock leaders, used momentum differently. He rejected simply buying the stocks with the highest relative strength. He wanted stocks that were beating the market as they broke out of a sound base near a new high. In his own comparison, stocks bought that way worked 6 or 7 times in 10, against 3 or 4 times in 10 for stocks bought while sliding below their 10-week average. Our post with William O’Neil’s trading tips covers more of his thinking.

Why do momentum strategies crash?

This is the part most momentum sales pages leave out.

Kent Daniel and Tobias Moskowitz studied the worst stretches in a 2014 paper called “Momentum Crashes.” They found that momentum suffers “infrequent and persistent strings of negative returns.” The crashes, in their words, “occur in ‘panic’ states – following market declines and when market volatility is high – and are contemporaneous with market rebounds.”

Their numbers from 2009 show it plainly. From March to May 2009, the US market rose 26%. The past winners rose only 8%, while the past losers rose 163%. In July and August 1932, the market rose 82%, the winners 32% and the losers 232%.

The reason is simple. After a long fall, the “winners” are the stocks that fell least, often the dull, defensive ones. The “losers” are the most beaten-down, riskiest names. When fear lifts, the riskiest names bounce hardest. A momentum book that is short the losers gets hurt badly. A long-only book of leaders is not wiped out, but it badly lags.

Momentum also has a lumpy feel, even in good years. A trader posted on a swing trading forum after his momentum screener gave him 3 signals in 1 week. One collapsed, one ran hard, and one did nothing. His verdict was: “I think I got all 3 expected outcomes.” That is a fair summary of how this style feels from trade to trade.

Does the momentum edge still exist after costs?

The honest answer is smaller than the textbook numbers suggest.

Research by David McLean and Jeffrey Pontiff, published in 2016, found that across many published market patterns, about half of the original return disappears once the paper is out and traders start acting on it. Momentum also trades often, because the leaders keep changing. Every commission and every bit of slippage comes out of the edge.

To be fair to the other side, the 2001 Jegadeesh and Titman check is a real point in momentum’s favour. The profits continued after the 1993 paper, which is more than many published patterns can say. What has shrunk is the size of the edge, and the margin for error that comes with it.

How to use momentum: a 3-step check

Here is a simple way to use momentum without being run over by it. It works for picking a stock, a sector or a whole market.

1. Rank the choices. Rank them by their return over the past 6 to 12 months, leaving out the most recent month. Look at the top of the list only.
2. Check the leader against cash. Make sure the leader is also rising on its own, with a return above what cash pays. If even the leader is losing to cash, stand aside.
3. Set the exit. Decide it before you buy. A fixed stop or a trailing stop loss keeps a single crash from taking a large share of the account.

Here is a hypothetical example with 5 made-up funds and a cash rate of 4% a year:

Fund A passes the first 2 steps. Now imagine every fund is negative, with Fund A at -3%. It is still the “best,” but it fails the cash check, and the check says to hold cash instead.

The Daniel and Moskowitz paper adds one more idea for the last step. A version of momentum that shrank its bets when its own risk was high “approximately doubles the alpha and Sharpe Ratio” of the plain version, in their tests. In plain terms, smaller positions in wild markets did much better than a fixed size.

Momentum works best as the reason to look at a stock, with the chart as the reason to buy it. The ranking narrows the list. The entry, the stop and the size still decide the result. For the entry side, see our post on the 4 types of trading setups.

So, when your strongest stocks lag on the first big up day after a fall, will you know whether that is a crash in the making or a normal wobble? And how much of your account would you let ride on a single leader? For more ways to build a system around rules like these, see the guide to trading strategies.

FAQ

What is momentum trading in simple terms?

It is buying assets that have risen the most over the past few months, on the evidence that strong prices tend to stay strong for a while, and exiting when that strength fades.

Is momentum trading profitable?

The research says momentum has paid over long periods across many markets. It also shows rare, sharp crashes, and about half of a published edge tends to fade once traders learn of it. Results depend heavily on costs, sizing and exits.

What is the difference between momentum and trend following?

Trend following is usually absolute momentum: holding an asset while it rises on its own. Momentum trading often means relative momentum, which ranks assets against each other and buys the leaders.

What timeframe does momentum trading use?

Most research looks at returns over the past 3 to 12 months and finds the effect lasts up to about a year. Short-term swing traders apply the same idea over weeks.

Is a momentum indicator the same as a momentum strategy?

No. A momentum indicator measures how fast price is moving over a few bars on a chart. A momentum strategy ranks assets by their return over months and holds the leaders.

Go deeper

Momentum tells you where the strength is. The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that protect your account.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.