Research On Parameter Optimization Of The Turtle Trading System Analysis Based On China’s Stock Index Futures

The Turtle Trading System which was once reputed as the highest profitable trading system, is one of the world famous program trading system. It is still widely used around the world now, which was invented by Richard Denis. It is mainly used in CBOT and NYSE。 The specific method we used was known as Donchian Channels, who popularized the breakout method of trading. We had an intermediate-length system that Rich and Bill called System1that considered20days of prices to determine the highs and lows and a longer-term system. System2uses60-day (12-week) highs and lows to determine the breakout. Some would determine how many N the price had advanced since the breakout, and buy the market that had moved the most.The domestic research on the Turtle Trading System is minimal at present. Most articles relate to it are descriptive reports, not to conduct a comprehensive inspection of the trading system, not considering the transaction costs, not to judge the sustainability of earnings. Therefore, this paper aims to test the return and risk of the Turtle Trading System in Chinese Stock Index Future, and select the best optimum parameters in Chinese market.This paper tests the original Turtle Trading System in China’s stock index futures, using Trade Blazer software. It finds that in the China’s stock index futures, the original Turtle Trading System does not earn profit, and inferior to the buy and hold strategy. The main reason is that several returns are used to cover the deficit caused by the false breakouts, in the China’s stock index futures market. Therefore this paper changes and tests the parameters breakout, second breakout and exit parameters. After optimization, the Turtle Trading System can obtain positive stable income, but the system parameters are changed, system1is changed from (20days,55days,10days) into (15days,87day,18days), system2is changed from (55days,20days) into (30days,111days). On this basis, this paper exams the Turtle Trading System in the index futures market from2005to2010, as well as in the bear market, the bull market environment. The results show that, in the index futures market from2005to2010, the effect of the Turtle Trading System after optimization is better than the original Turtle Trading System, and parameters changes little. This shows that over fitting problem does not exist, and the trading system working condition is stable. In the bull or bear market, the Turtle Trading System, after optimization can obtain stable earnings and the effect in the bull market is better than that in the bear market.In addition, this paper analyzes why the Turtle Trading Systems can succeed from the viewpoint of behavioral finance. The key to success of the Turtle Trading Systems is to overcome the three major cognitive biases, regency bias, result bias, and the propensity to predict the future. This paper has high practical value, can provide reference information for program trading.