Taking a Peek Inside the Turtle's Shell: A Review of Trading Models and Money Management

Abstract

This paper considers two issues. Firstly it examines the efficacy of a mechanical trading model freely available from the 'Turtletrader' web page on the Internet. The results are tested against the Efficient Market Hypothesis (EMH) Weak-Form as proposed by Fama (1970). The findings show that EMH Weak-Form fails to describe the profits generated by the model when examining CBOT Corn and T-Bond futures contracts. The second issue examined is the impact of optimal fixed fraction (or optimal f) trading to determine minimum account capitalisation and reinvestment issues on the futures trading portfolio per the method in Vince (1990). When portfolio capitalisation and reinvestment issues are considered, insufficient funds rapidly produces a trading account with a zero balance.

Keywords: Portfolio choice, model evaluation and testing, turtle, forecasting and other model applications, money management

JEL Classification: C52, C53, G11