On the road of trading, everyone is moving forward by summarizing experience. In this article, I would like to summarize my experience in trading.
I summarize it as the "Third Order Turtle Method". Because it follows the underlying logic of the turtle trading method, but it is not a turtle trading method, but a three-stage trading method. This method is particularly suitable for quantitative trading and letting the program run automatically.
1. Entry trial and error stage
To put it bluntly, this stage is about how to find a suitable way to enter the market. In fact, there are many ways to enter the market.
For the "Third-Order Turtle Method", the entry method at this stage will never consider buying the bottom, because whether the price is the bottom or not requires you to predict the market direction. Just because the prediction is correct this time does not mean it will be correct next time. We define the probability of the prediction being correct as X. The third-order turtle method is to wait for the trend to become clear before placing orders following the trend. In this way, I don't need to predict the market, I just need to confirm that the current trend has formed. In this way, the probability that the direction of this order is correct is Y. Although Y cannot be 100%, Y must be greater than X
We will use a case to explain the actual entry method.
As you can see, this is the 4-hour K-line of BTC. We choose to enter the market long at the second arrow, but from the K-line, it seems that we should enter the market from the first arrow. Because that's where the bottom is, but this is when the market moves out. At the first arrow, the subsequent market hasn't happened yet. How do you know where the bottom is?
In this strategy, how to judge the formation of a trend is very simple. Use Bollinger Bands. If the K-line closes above the upper limit of the red Bollinger Band, it means that a bullish trend has formed. On the contrary, if the K-line closes above the upper limit of the red Bollinger Band, it means that a short trend has formed.
Of course, if we use a program to trade through quantitative trading, we will use two types of signals to determine whether we can enter the market during the entry stage.
① Entry signal: This 4-hour strategy is to break through the upper and lower Bollinger Bands, which means the trend is formed, but there are many other methods, such as KDJ, MACD, SMI’s golden cross, dead cross, etc.
② Filter signals: Generally, entry signals cannot be 100% accurate. In order to improve the winning rate of the overall entry trial and error stage, we usually filter this entry signal. For example, if the 4-hour market is in a narrow range, , then it is very likely that the K-line closing will break the upper and lower rails of the Bollinger Bands. However, this is not a trend formation. Therefore, in the entry method of my Bollinger Bands, if an entry signal appears, we will use the Bollinger Bandwidth to judge. Is the current situation a true breakthrough or a false shock? The larger the Bollinger Bandwidth, the more accurate the entry signal. Of course, there are many ways to filter signals, such as judging overbought and oversold through RSI, judging top-bottom divergence through RSI, judging whether it is in shock through the ADX and ADXR heights of DMI, etc.
2. Breakthrough stage
The key work in the first stage is to find the entry signal. Once the market is entered, the second stage is called the breakthrough stage. This stage solves the stop loss problem. In other words, in the first stage, if the position is wrong, how should I stop the loss. All trades must prioritize stopping losses rather than taking profits.
The second phase is the most dynamic phase of the entire transaction. Success or failure lies here, but here we have actually entered the market and there is nothing we can do about the market trend. What we can do is to do a good job in stop loss management.
Or look at the picture
As you can see, we also used the 4-hour Bollinger Bands strategy just now to illustrate. A short trend was formed from the first arrow. After entering the market, it started to fall, but the good times did not last long and it rose again. Stop loss and exit at the second arrow.
The stop loss and exit method here is that after the order enters the market, the loss will be stopped when the K line hits the middle track of the Bollinger Bands. Because here’s the idea that the trend may be reversing.
Some people may say that the K-line seems to have gone up, but then fell down again soon. Wouldn't this be another loss? If I carry the order, I will be trapped at most and there will be no real loss.
I don't quite agree with this statement. I think stop loss in trading should be called cost. The money you stop loss is the cost you should pay for the money you want to earn. If you put it like this, everyone can understand it. If you sell something for 10 yuan, then I ask you, is the cost of 3 yuan acceptable? The answer is yes, then let me ask you again, do you accept the cost of 15 yuan? That is definitely not acceptable.
Treat stop loss as a cost, and you will find that this is what we must pay on the road to trading, and it must be quantified. When I design all quantitative trading programs, I will first determine the stop loss ratio. Generally, our stop loss in a single transaction will be less than 3% of the total position capital. Through the 3% stop loss, we can deduce that our position How much is it, what is the leverage, and where is the stop loss point.
3. Must-win stage
Is there a holy grail in trading? Is it possible to win? The answer is yes. If you have gone through the first two stages of a single transaction and did not stop the loss and leave the market in the second stage, congratulations. Next, your winning rate will be 100%. Is it just making more or less?
You must be confused, huh? What to do if the pin is inserted, what to do if there is a correction, what to do if the market crashes. You must have a lot of concerns. I know you.
My third-level turtle method will definitely win in the third stage. It benefits from dynamic take profit. This is also the goal of the third stage of how to design a profit stop.
First of all, remember, dynamic take profit! ! ! Dynamic take profit! ! ! Don't always think about fixing which point to take profit. Respect the market and don’t predict the market every day. The market will not develop as you predict. Even if there is, it is only an occasional probability.
Look at the picture
Let’s still use the Bollinger Bands just now to explain. In the second stage, we have said that when the K-line hits the middle track of the Bollinger Bands, the loss will be stopped. But if you look at this picture, the first arrow is a long entry, and the dynamic stop profit is The method is to hit the blue upper track of the Bollinger Bands, but the K line did not hit the blue upper track, but hit the middle track. We must stop the loss and exit.
Although it is a stop loss exit? Have we lost? I can tell you responsibly that we made a profit of more than 4,000 points in BTC on this order. as the picture shows
Found it? Entering the third stage, we make money regardless of whether we hit the profit-taking point or the stop-loss point. This is the sure-fire way to win in the third stage.
In the third stage, the key is how to design your dynamic take-profit position. There are actually many methods. Let me show you another example of our strategy.
This is our short-term strategy of 15 minutes. As shown in the picture, we made a profit of more than 300 points on BTC by shorting this order, but you can see on the K line that when we took profit on this order, the K line immediately rebounded and went up.
The first stage: entering the market
Determine the entry signal through the Gaussian channel. When the K line closes and leaves the Gaussian channel, it is regarded as a trend.
Use MACD and CCI to determine whether the current market is volatile. If the market is volatile, it will not advance.
Use RSI to determine the top-bottom divergence, and the divergence pattern will not advance
The second stage: stop loss
The stop loss point is designed through ATR, which is the thin line on the chart. Stop loss when it is hit.
The third stage: win and take profit
The same method is used to take profit through ATR. If you are long, you will hit the upper track of ATR to take profit. On the contrary, if you are short, you will hit the lower track. What makes this strategy advantageous for us is a retracement algorithm.
Because the short-term trend must cycle back and forth in the fluctuation of a wave. Therefore, as shown in the picture, although the ATR stop profit was not hit, the retracement algorithm took effect and the K line retraced, so we immediately took the profit, locked in more than 300 points of profit, and settled down. Otherwise, you have to keep waiting for the stop profit on this order. I'm afraid you won't be able to wait, and what you are waiting for is the stop loss.
Finally, make a summary.
The so-called third-level turtle method is nothing more than three stages: following the trend to enter the market, setting a stop loss, and a sure-win dynamic take-profit. The reason why this method can maintain profitability in the long term is because we scientifically plan the stop loss amount and treat it as our transaction cost. At the same time, we do not predict the future, but only follow the trends that occur.
For the 4-hour Bollinger Bands strategy shown in this article, I will show you a set of data through TradingView. The winning rate of this strategy is not high, only 57.67%, but it maintains a profit-loss ratio of 1.957 through the design of the third-order turtle method. Maintain excellent profitability in the long term
Regarding the specific profits, we can see that within 2 months, the total position achieved a profit of 98.66%, and the total position was basically turned over.
