By Taro Hideyoshi<\/p>\n
The critical piece of trading system<\/a> is how to get out of a losing trade. Traders who do not cut their losses cannot be successful in long term.<\/p>\n The most important thing about stops that traders must keep in mind is to define the stops before enter a trade. This is of course not a coincidence that every famous trader has this trading rule in their trading system.<\/p>\n For the turtles, they did not place their stop with the brokers since they did not want to reveal their trading strategies<\/a>. As they traded future contracts commodities, they used either limit orders or market orders instead.<\/p>\n No trade of turtles could incur more than 2% risk of equity. Because the turtles used N-based stops while N of price movement represented 1% of account equity, therefore the maximum stop allowed 2% risk would be 2N.<\/p>\n According to the entry rule of turtles, that a unit would be added into positions every 0.5N, the stops would be placed at 2N from the most recently added unit to minimize the total position risk.<\/p>\n Example<\/em><\/p>\n Crude Oil: N = 1.20, 55-days breakout = 28.30<\/p>\n In this case turtles would enter the first unit at 28.30. Then if price moved to 30.10 the positions of turtles would be as follow.<\/p>\n First Unit: entry [28.30] stop [27.70]<\/p>\n Second Unit: entry [28.90] stop [27.70]<\/p>\n Third Unit: entry [29.50 stop [27.70]<\/p>\n Fourth Unit: entry[ 30.10 stop [27.70]<\/p>\n