This past Saturday, I wrote a quick review of The Complete Turtle Trader by Michael Covel. I received an email from a client asking about the Turtle Traders. Based on our email exchange, I thought I’d provide a little overview of the Turtle Trader Experiment for all to enjoy.
Turtle Traders: A Look at the Famous Trading Experiment
In finance and investments, few stories are as intriguing as that of the Turtle Traders, a group of novice traders trained to become some of the most successful in the history of the financial industry. The Turtle Traders’ story is not only captivating because of their surprising success but also for the experiment that led to their formation.
Founded by Richard Dennis and William Eckhardt in the early 1980s, the Turtle Trading experiment aimed to prove whether great traders were born or made. In this post, we’ll deep dive into the fascinating story of the Turtle Traders, discussing their unique investment strategy, notable successes and failures, and the lasting legacy of their methodology on modern trading.
The Birth of the Turtle Traders
In 1983, Richard Dennis, a successful commodities trader, and William Eckhardt, his former trading buddy, started an experiment. They debated whether great traders were born with an innate talent or if anyone could be taught to trade successfully. To settle the argument, they decided to recruit a group of novice traders and train them using a specific set of rules and techniques.
The duo placed an ad in the Wall Street Journal, seeking applicants with little to no experience in trading. Out of thousands of applicants, they selected only 23 people to become Turtle Traders. These individuals would spend the next two weeks learning the ins and outs of Dennis and Eckhardt’s unique investment strategy.
The Turtle Trading Method
The Turtle Trading method, created by Dennis and Eckhardt, was primarily based on trend-following and using the principle of cutting losses short and letting profits run. Some of the core components of their trading strategy included:
- Price Breakouts: The Turtles bought securities when they reached new highs and shorted them when they reached new lows.
- Systematic Risk Management: Each trade was only allocated a small portion of their portfolio to ensure no single trade could cause severe damage.
- Position Sizing: The Turtles used a concept called “volatility-based position sizing,” which determined the number of contracts to be traded based on the security’s inherent volatility.
- Stop Loss Orders: The Turtles employed tight stop-loss rules to protect themselves from significant losses if the market moved against their position.
- Diversification: The Turtles were encouraged to trade multiple markets and asset classes to spread the risk.
When used together, these principles aim to make the most out of existing market trends while minimizing the risk of losses.
Successes and Failures
Many Turtle Traders experienced incredible success over the next few years, consistently outperforming the market and making millions for themselves and their investors. One of the most successful traders in the group was Jerry Parker, who reportedly made nearly $30 million for Dennis between 1983 and 1988.
However, other Turtles didn’t fare as well in achieving long-term success, with some needing help to adapt to evolving market conditions or deal with the pressures of managing substantial amounts of capital. As a result, the experiment was disbanded in 1988 following a disagreement between Dennis and Eckhardt.
The Turtle Trading Legacy
Although the Turtle Trading experiment was short-lived, its impact on the financial industry and modern trading is undeniably significant. The experiment proved that individuals without prior knowledge of financial markets could learn to become successful traders. More importantly, it introduced concepts such as risk management and position sizing, which are now widely used by modern traders.
Today, the legacy of the Turtle Traders is alive and well, with many modern business schools incorporating their principles into their trading courses. For those interested in learning more about their methodology, there are also several books dedicated to the story and strategy of the Turtle Traders. As one of the most famous experiments in financial history, their story is an important reminder that anyone can learn to trade successfully with the proper guidance and training.
