Turtle Soup vs. Turtle Soup Plus One: An Evolutionary Leap in Contrarian Trading

The Classic Turtle Soup: A Recap

As we've discussed, Linda Raschke's Turtle Soup strategy is a masterstroke of contrarian trading. It's designed to capitalize on the failure of breakouts, preying on the predictable emotional response of traders who chase new highs and lows. The core principle is to fade the breakout, entering a position counter to the initial move in anticipation of a sharp reversal. This approach, while effective, requires a certain degree of nerve, as it involves stepping in front of what appears to be strong momentum.

The Evolution: Turtle Soup Plus One

Recognizing the inherent risk in fading a fresh breakout, Raschke developed a more conservative variation of the strategy: the Turtle Soup Plus One. This evolution of the original concept introduces a important element of patience, waiting for the market to provide more confirmation before entering a trade. Instead of entering on the same day as the failed breakout, the Turtle Soup Plus One trader waits for the next day to enter the trade. This subtle shift in timing has a profound impact on the strategy's risk/reward profile and psychological comfort.

The Psychological Advantage of Patience

The Turtle Soup Plus One offers a significant psychological advantage over its predecessor. By waiting for the next day to enter, the trader is no longer trying to catch a falling knife. Instead, they are entering a market that has already shown signs of reversing. This confirmation, however small, can make a world of difference to a trader's confidence and ability to execute the strategy flawlessly. The Turtle Soup Plus One is a more relaxed, less stressful way to trade reversals, making it an ideal choice for traders who are not comfortable with the high-octane nature of the classic Turtle Soup.

The Rules of Engagement: Turtle Soup Plus One

The rules for the Turtle Soup Plus One are similar to the classic version, with the key difference being the timing of the entry.

For a Long Trade:

1. The market makes a new 20-day low, but closes above that low.
2. The previous 20-day low must have been made at least four days prior.
3. On the next day, place a buy stop order above the high of the breakout day.
4. If the order is filled, place a protective stop-loss order one tick below the new 20-day low.

For a Short Trade:

1. The market makes a new 20-day high, but closes below that high.
2. The previous 20-day high must have been made at least four days prior.
3. On the next day, place a sell stop order below the low of the breakout day.
4. If the order is filled, place a protective stop-loss order one tick above the new 20-day high.

A Tale of Two Soups: Risk/Reward Comparison

The classic Turtle Soup offers a higher potential reward, as it gets the trader into the move at a more favorable price. However, it also comes with a higher risk, as the trader is entering a market that is still in the throes of a potential breakout. The Turtle Soup Plus One, on the other hand, offers a lower potential reward, but also a lower risk. By waiting for confirmation, the trader is sacrificing some potential profit for a higher probability of success. The choice between the two strategies ultimately comes down to the individual trader's risk tolerance and trading style.

Conclusion: The Power of Patience

The Turtle Soup Plus One is a effective evolution of a classic contrarian strategy. By introducing the element of patience, it offers a more conservative, higher-probability approach to trading reversals. While it may not offer the same explosive profit potential as the classic Turtle Soup, its psychological comfort and improved risk/reward profile make it a valuable addition to any trader's arsenal.