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Richard Dennis has been widely recognized as the crackerjack of commodity trading, as he had made a whopping $100 million from an initial investment of just around $5,000, back in the 1980s. Dennis believed that futures or commodity trading could be learned by just about anyone if they were given the right training and inputs, as opposed to his partner Eckhardtâ€™s opinion that to gain overwhelming success in commodity trading is purely a matter of an individualâ€™s innate aptitude and flair.
Dennis followed up on his own line of thought and went on to prove through an experiment he undertook in December 1983, that trading skills could be taught, and that expert traders could be bred just like the turtles in a turtle farm he had recently visited in Singapore! He chose fourteen people from diverse backgrounds, to whom he would teach over a two-week period, the techniques and rules of trade that he had been using consistently with such astonishing success. Thus the name of â€˜turtle tradingâ€™ was born, and needless to say that the experiment was a huge success, with the â€˜turtlesâ€™ netting an average annual (compound) rate of return of 80%, making well over $100 million dollars.
Four of the original turtles were Curtis Faith, Russell Sands, Paul Rabar & Jerry Parker.
The results posted in late 2007 by seven of the original Turtles who are still trading and managing public money have are interesting to see:
Name of Firm
The turtle trading system took into account the following factors on which to base its trading strategies:
Markets - What to buy or sell
Position Sizing - How much to buy or sell
Entries - When to buy or sell
Stops - When to get out of a losing position
Exits - When to get out of a winning position
Tactics- How to buy or sell
Thus, Turtle trading decisions were based essentially on the state of market liquidity, position sizing, consistency and stops.
Liquidity of the underlying markets â€“ the original turtles traded only the most liquid markets, avoiding the grains & meats. The markets traded were:
The NY Coffee, Cocoa & Sugar Exchange
The New York Mercantile Exchange (Crude & Heating Oils, Unleaded Gas)
The Chicago Mercantile Exchange
The Chicago Board of Trade
Comex (Gold, Silver, Copper)
Position sizing - turtles used the principle of position sizing to spread risk by making similar but not identical bets across diverse instruments and thereby increasing the likelihood of making good profits on successful trades. Using a large trading capital was a key factor for success in this attempt. The algorithm used was based on the market's dollar volatility, regardless of the volatility of the particular market.
Breakout -The turtles used either the 20-day breakout or the 55-day breakout entries based on Richard Donchian's Channel Breakout systems. The term 'breakout' refers to the price that exceeded the high/low for a given number of days.
Consistency: The turtles had to be highly consistent in taking the cue on the right entry signals.
Stops: The turtles always used stops to cut their losses and had a pre-set base price which would signal an exit to be made through limit orders or market orders. Likewise, the Turtles made sure they placed their stops on a maximum risk of 2%.
The great advantage of turtle trading is that it gives a set of specific rules by which the trading game is to be played with unrelenting consistency, in order to make large profits for traders willing to put in big stakes, through a process of spreading the risk.
On the flip side, the experience with turtle trading has been that most breakouts tend to result in losing trades, involving large drawdowns. Any departure from the system is likely to result in losses.
Curtis Faith, an ex-Turtle, published the rules on turtle trading for free in response to massive commercialization by other turtles. Lately, there has been a lot of controversy and finger-pointing among the turtles. Here is a link to the rules:
Turtle Rules pdf
Recent books on turtle trading: The Complete Turtle Trader by Michael Covel The Original Turtles by Russel Sands
A video of Turtle TRader Speech by Michael Covel in Tokyo:
Curtis Faith, one of Richard Dennis' Original Turtles in a Video Interview