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.Eckhardt explained the logic behind N : We found that volatilityis something that can be described as a moving average process.OurTurtleTraderTheRules 81incorporation of a volatility element in our trading something thattells us how large our positions should be has both kept us out oftrouble during the tough times and allowed us to capture large gainswhen things are going our way. 12The Turtles were taught multiple uses of N, but first they had tocalculate it.Consider this example of N calculation:Table 5.6: September 2006 Kansas City Wheat FuturesATR Calculations Example.20-DayMovingAverageof theTrue TrueDate Open High Low Close TR 1 TR 2 TR 3 Range Range07/03/06 512.00 521.50 511.25 516.5007/05/06 517.00 524.00 513.00 521.50 11.00 7.50 3.50 11.0007/06/06 521.00 523.50 515.50 518.00 8.00 2.00 6.00 8.0007/07/06 510.00 515.00 505.50 506.00 9.50 3.00 12.50 12.5007/10/06 508.00 513.00 508.00 511.00 5.00 7.00 2.00 7.0007/11/06 519.00 527.50 515.00 524.00 12.50 16.50 4.00 16.5007/12/06 523.00 523.00 512.00 518.50 11.00 1.00 12.00 12.0007/13/06 510.00 514.00 492.00 493.00 22.00 4.50 26.50 26.5007/14/06 494.50 499.50 490.50 497.50 9.00 6.50 2.50 9.0007/17/06 501.00 503.50 489.00 490.00 14.50 6.00 8.50 14.5007/18/06 491.50 494.50 487.00 490.00 7.50 4.50 3.00 7.5007/19/06 486.00 488.00 477.00 486.00 11.00 2.00 13.00 13.0007/20/06 489.00 505.00 489.00 501.50 16.00 19.00 3.00 19.0007/21/06 500.50 515.00 500.50 505.00 14.50 13.50 1.00 14.5007/24/06 502.00 505.50 498.00 499.00 7.50 0.50 7.00 7.5007/25/06 503.00 505.00 486.00 489.00 19.00 6.00 13.00 19.0007/26/06 489.00 489.50 481.00 481.00 8.50 0.50 8.00 8.5007/27/06 482.00 488.00 481.00 485.00 7.00 7.00 0.00 7.0007/28/06 486.50 488.00 483.00 484.50 5.00 3.00 2.00 5.0007/31/06 484.00 494.00 484.00 492.00 10.00 9.50 0.50 10.0008/01/06 490.50 491.00 481.25 481.50 9.75 1.00 10.75 10.75 11.94TurtleTraderTheRules 82If the N for corn was 7 cents and the market was up 5.25 cents,then the market was up three-quarters of an N. That s Turtle jargon.So N is a volatility measurement and a useful rule of thumb to clas-sify how far a market has trended.Erle Keefer rattled off Turtle jargon: When we put a bet on, we never said, I am putting on a $1,000 bet.We were taught to think in terms of N. I got a one-half N on. Wewere taught that way because for most people, if they start to think, I ve got $34 million in bonds on, then the concept of money getsinto their lizard brain and they start saying, Oh, my God! We learnedthe correct way to think was, How much did the market move today?It didn t move thirty-one ticks in the bonds, it moved one and one-quarter N. The below chart shows N plotted below a bar chart of Dell.Notice how N can and does change.These values had to be up-Chart 5.7: Chart Showing Dell Daily Bars with Daily ATR.Daily Price Chart of Dell Computers with ATR valued in dollars plotted below.Athe ATR fluctuates as the market moves up and down on any given day.Source: Price-Data.com.TurtleTraderTheRules 83dated.Eckhardt updated his volatility estimates every day.He said, That s my routine.Two or three times a year I make an adjustmentintra-day. 13Once they had a feel for N, the Turtles were instructed abouthow much to bet. They bet a fixed 2 percent of their capital onhand on each trade.If they had $100,000, they would bet (or risk)2 percent ($2,000) on each trade.Each 2 percent bet of their equitywas called a unit. The unit was jargon that they used every dayto measure risk.They had unit limits on any market sector and unit limits on the totalportfolio.The unit fluctuated so that every day the Turtles knew howmany contracts to have on based on how much money they had intheir trading account at that instant.14Trading Your Own Account Tip #8:Take your account (whatever size it is) and multiply by 2 per-cent.For example, a $100,000 account would risk 2 percent,or $2,000 per trade.It is always better to bet a small amountinitially on any trade in case you are wrong which can easilybe greater than 50 percent of the time.While the Turtlestypically used a 2 percent bet, you can reduce your risk andreduce your return by decreasing that number to, for exam-ple, 1.5 percent, etc.The Turtle risk management dictated their stops, their additions topositions, and their equalization of risk across their portfolios.For ex-ample, a corn futures contract (a standard corn contract is worth $50per cent) with an N of 7 cents has a risk of $350 (7 cents $50).Ifthe Turtles received a corn breakout signal (using a 2N stop), theywould have had a contract risk of $350 2, or $700.Assuming a $100,000 account, they would have had an accountrisk of $2,000 (2% $100,000).The number of contracts to buy orsell is determined by taking the 2 percent account risk and dividing itby the contract risk.That gives 2.67 ($2,000/$700) futures contracts.Turtles rounded down to the nearest whole number
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