Turtle Trading Channel – What It Is & How to Trade with It

Turtle Trading Channel – What It Is & How to Trade with It

What is the Turtle Trading Channel?

The Turtle Trading Channel is a breakout trading system developed by Richard Dennis and William Eckhardt for their famous Turtle Traders experiment. It consists of price channels that help traders identify strong breakouts and trend continuations.

The system includes:

1. 20-Period Channel (Short-Term Breakout) – Used for initial entries and short-term trades.
2. 55-Period Channel (Long-Term Breakout) – Used for trend-following and trade continuation.

These channels plot the highest high and lowest low over the chosen period, forming a dynamic support and resistance structure.

Key Features of the Turtle Trading Channel

• Identifies strong breakout trades.
• Helps traders follow trends systematically.
• Provides clear risk management rules with stop-loss placement.

How to Use the Turtle Trading Channel in Forex Trading

1. Breakout Trading Strategy

The Turtle Trading system is built around breakout trading:

• Buy when: Price breaks above the 20-period high, confirming an uptrend.
• Sell when: Price breaks below the 20-period low, signaling a downtrend.

2. Trend-Following Strategy

For long-term trades, traders use the 55-period breakout:

• Buy when: Price closes above the 55-period high, confirming bullish momentum.
• Sell when: Price closes below the 55-period low, confirming bearish momentum.

3. Turtle Trading with ATR Stop-Loss

The system includes a stop-loss rule based on the Average True Range (ATR):

• Stop-loss for Buy Trades: 2 ATR below the entry price.
• Stop-loss for Sell Trades: 2 ATR above the entry price.

4. Turtle Trading with Moving Averages

Pairing the Turtle Trading Channel with a moving average (e.g., 50 EMA) helps confirm trade entries:

• Buy when: Price breaks above the 20-period high, and price is above the 50 EMA.
• Sell when: Price breaks below the 20-period low, and price is below the 50 EMA.

Pros and Cons of Using the Turtle Trading Channel

✅ Pros:

• Provides a clear, rule-based approach to trading.
• Helps traders identify and ride strong trends.
• Works well in trending markets with strong breakouts.

❌ Cons:

• May generate false signals in sideways or choppy markets.
• Requires patience, as not all breakouts lead to trends.

Final Thoughts

The Turtle Trading Channel is a powerful breakout and trend-following system that helps forex traders catch major price moves and manage risk effectively. When combined with ATR stop-loss, moving averages, or price action strategies, the Turtle Trading system enhances trade accuracy and consistency.