Sizing Positions by Volatility: The Turtle ‘N’ Method Explained
Trading the same number of shares or contracts in calm and volatile markets means taking very different dollar risk. The Turtle traders’ “N” method sizes each position so that a typical day’s move costs the same share of the account. Here is how it works.
By PYE Markets • Published 2026-10-18 • Updated 2026-10-21 • 7 min read
Update, 2026-10-21: Updated on 21 October 2026: added a section on fixed-dollar loss limits and micro contracts, from our retired piece “Bigger Index Points, Same $2,000 Drawdown”.
Key points
- The Turtle rules measure volatility with “N”, a 20-day average of the true range. One unit = (1% of account equity) ÷ (N × dollars per point), so a one-N move in any market is worth about 1% of the account.
- If a market’s daily range doubles, the same number of contracts carries twice the dollar risk. Volatility-based sizing halves the position instead, keeping dollar risk roughly constant.
- Reward-to-risk and win rate are linked: at 5:1, a strategy breaks even before costs with a win rate of about 16.7%. That is arithmetic, not a forecast of results.
- Turtle Unit: 1% of Equity ÷ (N × $ per Point)
- N: 20-Day Average True Range
- Breakeven Win Rate at 5:1: 1 ÷ (1 + 5) ≈ 16.7%
A trader who always trades 500 shares of NVDA, two E-mini Nasdaq contracts or five standard FX lots is taking very different dollar risk on a quiet day than on the day of a major data release. Volatility-based sizing fixes the dollar risk instead of the position size.
1. The Turtle “N” Unit Formula
The Original Turtle Trading Rules define true range as the largest of: high − low, high − previous close, and previous close − low. N is a 20-day moving average of true range, updated as N = (19 × previous N + today’s true range) ÷ 20. N multiplied by the dollars per point gives the dollar volatility of one contract; dividing 1% of account equity by that figure gives the unit size.
- Shares and ETFs ($1 per point per share): shares = dollar risk budget ÷ stop distance in dollars.
- CME futures (ES $50/pt, MES $5/pt, NQ $20/pt, MNQ $2/pt, GC $100/pt, MGC $10/pt): contracts = dollar risk budget ÷ (stop distance in points × dollars per point).
2. Reward-to-Risk and Win Rate
In Tony Robbins’s MONEY: Master the Game (2014), Paul Tudor Jones explains his preference for trades with five times as much potential reward as risk: “Five to one means I’m risking one dollar to make five.” He goes on to say that this lets him be wrong four times out of five and still not lose money. The arithmetic behind that is simple: with reward R times the risk, the breakeven win rate before costs is 1 ÷ (1 + R)—about 16.7% at 5:1. Whether a given strategy can actually achieve 5:1 outcomes is a separate question.
3. Reducing Size During Drawdowns
The Original Turtle Trading Rules reduce the account size used for sizing by 20% for each 10% drawdown. Mark Minervini describes a related idea, progressive exposure, in Trade Like a Stock Market Wizard (2013): start with smaller positions and add exposure only as trades work. Exact percentages for these step-downs vary from trader to trader.
4. Fixed-Dollar Loss Limits and Micro Contracts
Prop accounts usually set the loss limit in dollars (for example $2,000 on a $50,000 account), so it does not grow when the index rises. A stop set at a fixed percentage of price therefore costs more dollars per contract as the index climbs. Micro contracts are one-tenth the size of the E-minis (MNQ $2 a point against NQ $20; MES $5 against ES $50; MGC $10 per $1 against GC $100), so they let a trader adjust size in smaller steps. Example: two NQ contracts lose $2,000 on a 50-point move (2 × 50 × $20); five MNQ contracts lose $500 on the same move.
Illustration: Sizing for a $500 Risk Budget (Hypothetical Stop Distances)
| Instrument | Contract Multiplier | Hypothetical Stop | Dollar Risk per 1 Unit | Position for $500 Risk |
|---|---|---|---|---|
| Micro E-Mini S&P 500 (MES) | $5.00 / point | 25.0 pts | $125 / contract | 4 MES Contracts ($500 risk) |
| Micro E-Mini Nasdaq (MNQ) | $2.00 / point | 125.0 pts | $250 / contract | 2 MNQ Contracts ($500 risk) |
| Micro Gold Futures (MGC) | $10.00 / $1 move | $25.00 | $250 / contract | 2 MGC Contracts ($500 risk) |
| Liquid Equity / ETF (e.g. SPY / NVDA) | $1.00 / share | $5.00 / share | $5.00 / share | 100 Shares ($500 risk) |
Volatility-based sizing turns a fixed dollar risk budget into a position size that shrinks when markets are volatile and grows when they are calm. The Turtle “N” formula is one published version of that idea.
Editorial Disclosure: Turtle formulas are from The Original Turtle Trading Rules (published by former Turtle Curtis Faith, 2003, describing Richard Dennis & William Eckhardt’s program). The Paul Tudor Jones quotation is from Tony Robbins, MONEY: Master the Game (2014). Progressive exposure is described in Mark Minervini’s Trade Like a Stock Market Wizard (2013). Figures in the table are illustrations. General information, not personal trading advice.