Turtle Position Sizing Basics: Understanding the N Unit

The Turtle Trading approach popularized a simple, rules-based way to size positions using market volatility. The core idea is to let volatility set your position size so no single trade dominates your risk. Two key pieces drive this: N (a volatility measure) and the Unit (a standardized position size based on N).

What is N in the Turtle system?

N is the Turtle system’s measure of recent volatility. Practically, think of N like a 20‑day, ATR‑style average of how much price moves day to day. When N is high, the market is more active; when N is low, it’s quieter. Using N makes your size adapt: you trade smaller in fast markets and larger in calm markets.

If you want a refresher on Average True Range (ATR), which underpins this idea, see Average True Range (ATR) Simply Explained.

How the N Unit controls position size

A Unit is a position whose size is calibrated to a fixed slice of your account, using N. This standardizes risk across symbols and market regimes.

• Pick a per‑unit risk budget. Many traders choose around 0.5%–1% of account equity per Unit. Keep it consistent.
• Decide your stop distance in terms of N. Classic Turtle practice often used a 2N stop, but choose what fits your plan and instrument.
• Translate N into dollars. For stocks, 1N is roughly N dollars per share. For futures/FX, convert N into dollars per contract using the contract’s point value.
• Size the position so that if price hits your stop (e.g., 2N away), the loss is limited to your per‑unit risk budget.

Step‑by‑step example

Assume:

• Account equity: $50,000
• Per‑unit risk: 1% = $500
• N for a stock: $1.50
• Stop distance: 2N = $3.00 below entry on a long

Interpretation: each share risks about $3.00 if the stop is hit. To keep the loss near $500, you can hold roughly $500 ÷ $3.00 ≈ 166 shares. Round down to 160 shares to stay under budget. That 160‑share position is one Unit.

As volatility changes, N will change. If N expands to $2.50 (2N = $5.00), one Unit would drop to around $500 ÷ $5.00 = 100 shares. If N contracts, the Unit size increases. This is the core benefit of N‑based sizing: it adapts to the market so your risk stays proportional.

Some traders add Units as a trend develops (for example, every 0.5N–1N the position moves in their favor), capping the total number of Units to prevent overexposure. Whether you pyramid or not, keep the same per‑unit risk rules to stay consistent.

Practical tips and common pitfalls

• Recalculate N regularly. Daily recalculation is common for swing trades; intraday traders can adapt the lookback to their timeframe.
• Keep the risk budget steady. Changing your per‑unit percent frequently defeats the purpose of standardized sizing.
• Mind instrument specifics. Futures and FX require converting N into dollars using tick size and point value.
• Use round numbers conservatively. Always round share/contract counts down to avoid exceeding your risk budget.
• Watch correlation. Multiple positions in highly correlated markets can stack risk even if each is one Unit.
• Avoid “set and forget” stops. Volatility evolves; review stops and position size as N shifts.
• Test before going live. Replay historical charts to see how N‑based sizing behaves through quiet and volatile periods.

N and the Unit give you a straightforward framework: define a fixed risk per position, anchor it to current volatility, and let the math keep you honest. This removes guesswork and helps you compare trades on equal footing, whether you’re trading breakouts, pullbacks, or trend continuations.

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