Once, while delving into the financial markets and exploring varied trading strategies, I stumbled upon the fascinating journey of the turtle traders. In the early 1980s, Richard Dennis and his partner William Eckhardt set out to settle a bet. Could novice traders be taught a winning system, or did successful trading depend on innate talent? Dennis believed a set of simple rules could turn anyone into a profitable trader, while Eckhardt disagreed. So, they conducted an experiment inspired by the notion of breeding trader âturtles,â taking Richardâs idea from visiting turtle farms in Singapore.
Richard and William initiated a large-scale financial experiment in 1983. They recruited 23 individuals who had little to no experience in trading. These participants later became known as turtle traders. Each turtle received a two-week training course where they learned Dennis' trading rules. The crux of their strategy was trend-following, where the focus lay on capturing large market movements by buying when prices were high and selling when they rose higher. The turtles were allocated capital, typically starting around $1 million each, to trade various futures markets, encompassing commodities like gold, oil, and agricultural products. This sizable capital allocation underscores their level of commitment and belief in the experiment's potential success.
The rules were relatively straightforward, focusing on breakouts from price ranges and utilizing a robust risk management plan. What always struck me as intriguing was how they used a fundamental and technical system that combined moving averages and volatility measures, such as the ATR (average true range). These rules dictated when to enter and exit trades, making the strategy largely mechanical, thus reducing emotional interference. For example, one rule involved entering the market when the price broke to a new 20-day high, while another focused on options and futures contracts. An essential part of their system was limiting risks to avoid significant financial setbacks. They risked only 1-2% of their total account balance on any single trade.
Over their four-year experiment, the results were profound. Dennis reportedly turned $1,000 into $100,000, something that borderlines on incredulous but attests to the systemâs power. The turtle traders, on average, returned around 80% per year â an extraordinary ROI, considering today's standard returns. Michael Covelâs book on the subject meticulously details several turtle traders, revealing how they consistently made significant profits regardless of market conditions. The practicality and success of turtle trading cemented its status in trading history as a proof point that systematic, rules-based trading could work for the masses.
Dennis and his turtles shattered the myth that successful trading required an inherent skill set. I once read how Curtis Faith, the youngest turtle, made $31.5 million in just a few years by employing this exact strategy. It's extraordinary to think about the levels of discipline and the blind faith turtles exhibited by letting a systematic strategy drive their investment decisions. The confidence they placed in the methodology overshadows the doubts and trepidations often faced by traders who rely heavily on instinct and emotions.
Despite the simplicity of turtle trading rules, not every participant succeeded equally. Some traders, such as Faith, stood out for their remarkable performance, while others struggled to stick to the rules. Their variations in success underscore how psychological fortitude can impact trading outcomes, even when using a proven system. I often ponder how influential psychological resilience and the ability to adhere to preset rules can be. Trading isnât merely about a set of rulesâit's about the unwavering application of those rules.
One particularly iconic element of turtle trading that tends to surface in financial discussions involves their robust risk management approach, often cited as their key to survival during volatile periods. They avoided large drawdowns by diversifying their trades across different asset classes and implementing strict stop-loss orders. This cautious yet confident positioning is something modern traders could greatly benefit fromâespecially in today's unpredictable markets where swift changes are the norm.
The turtle trading strategyâs influence extends beyond the historical experiment. Many modern trading systems and algorithms have roots in Dennis' trend-following principles. The strategy, detailed in books and courses, continues to inspire new generations of traders. The exact rules and mindset of turtle trading can be found on resources like this Turtle Trading Strategy. It's somewhat poetic how this initiative from four decades ago persists in contemporary discussions because fundamentally sound strategies transcend time.
As I reflect on turtle trading, I appreciate how it embodies the essence of systematic trading. Dennis' approach simplified the complex world of financial markets into digestible rules that anyone could theoretically follow. Still, the story of turtle traders teaches us that successful trading is as much about discipline and execution as it is about the strategy itself.