In contrast to the vast majority of floor traders , who quickly scalped trades throughout a trading day, Dennis held positions for longer periods—riding out short-term fluctuations and holding over the intermediate term. Dennis often pyramided his positions. In the late s, he bought a full membership at the more expensive Chicago Board of Trade and opened an office upstairs in order to trade more markets. Dennis believed that successful trading could be taught. To settle a debate on that point with William Eckhardt , a friend and fellow trader, Dennis recruited and trained 21 men and two women, [5] in two groups, one from December , and the other from December Dennis trained this group, known as Turtles, for only two weeks about a simple trend-following system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range.

This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves. Some of the recruited turtles: [6] [7] [8]. In January , after the two-week training period was ended, Dennis gave each of the Turtles a trading account and had them trade the systems they had been taught.

During this one-month trading period, they were allowed to trade a maximum of 12 contracts per market. The result of such back-test shows a drastic drop in performance after , and even a flat performance from to began and continued careers as successful commodity trading managers, using techniques similar, but not identical, to the Turtle System. Dennis managed pools of capital for others in the markets for a while, but withdrew from such management in the spring of after his clients suffered heavy losses.

Dennis has published op-ed articles in The New York Times , The Wall Street Journal , and the Chicago Tribune. He is the president of the Dennis Trading Group Inc. From Wikipedia, the free encyclopedia. American commodities speculator. For other people named Richard Dennis, see Richard Dennis disambiguation. The New York Times Magazine. Retrieved Archived from the original on March 4, The New York Times. Houghton Mifflin Harcourt. I like this article. Thank you.

I really appreciate your time and the value you so generously give to the trading community. My takeaway is sit on your winners and cut your losses short.

Commitment,discipline and more practice keeps you perfect,Thank you so much Mr Rayner.. you are always great man …all best wishes. Thanks for this wonderful piece. So take sometime between your loss and the next trade. Thanks a lot Rainer… I hope I can meet you in the future. That i should trade with the trend at event areas,extreme low or high considering the rules and let it run with trailing stop.

Thankyou for being here for the people. Lesson learnt, the main strategy may not work today, but the principle behind still holds.

Thank you Rayner. this is very similar to playing poker…. know when to fold…. know when to play…. avoid going on tilt! poker is simply a game of managing losses…. make your wins larger than your losses! Because how can the minority of traders be pushing the market?

Perhaps you can do a video to clear up this confusing concept. Ride the breakouts like a professional yachtsman would ride the wild Atlantic waves in a storm… but wear a good life jacket. If you are thinking what your batting average should be, you are not concentrating on the right thing when you bat the ball. That is good to hear! Dennis is legend.

I would say :Test your strategy, create and trust your belief, visualise the trend based on principles of market, position size trade, trade small and reinvest market money! Please log in again.

The login page will open in a new tab. After logging in you can close it and return to this page. Richard Dennis: 17 Trading Advice from a Market Wizard. And yes, he won the bet that trading can be taught. However, not all stories have a happy ending. And I want to share them with you right now… 1. Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend.

A good trend following system will keep you in the market until there is evidence that the trend has changed. Instead… Widen your trailing stop loss to accommodate the deep retracement that might occur — and you have the best chance of riding a trend.

Pro Tip: You can use indicators like Moving Average or the Average True Range to trail your stop loss. This is the opposite of what most traders do — and it HURTS them big time.

However… You have difficulty holding on to your gains because… You see profits. You see green. You see money. BUT… You have the FEAR of losing those gains.

The end result? Big losses and small winners. You should expect the unexpected in this business; expect the extreme. The price is so high. The market exploded even higher. So the lesson is this: You can never tell if the market is too high to buy or too low to short. But chances are, you can find these trends once every few years and they can last for YEARS. Trading decisions should be made as unemotionally as possible.

Now the question is, how? Let me ask you… If you want to be a brain surgeon, will you immediately operate on a live human brain? Of course not! Market when you can do so at a fraction of the cost? I could trade without knowing the name of the market. It could be Soybean, Crude Oil, Copper, Rubber, or Cotton, who cares. The only thing that matter is price, and nothing else.

In the real world, it is not too wise to have your stop where everyone else has their stop. Let me ask you… Do you always get stopped out only to watch the market reverse back in your intended direction? So, how can you avoid it? By setting your stop loss AWAY from the obvious market structure. I cover in more details here: How to Avoid Stop Hunting While Other Traders Get Stopped Out You could publish trading rules in the newspaper and no one would follow them.

The key is consistency and discipline. There are 2 ways you can go about it… 1. Backtest the trading strategy This allows you to understand how a trading strategy performs historically. Understand the logic behind WHY a trading strategy works Most trading strategy that works have an underlying logic behind it. For example: Trend Following works because human biases and emotions cause the market to trend.

Or how about Value Investing? There are lots more false breakouts, perhaps because there are more computer-based trend followers. Also… If you want to increase your odds of capturing a trend, you must trade across different markets.

This includes Forex, Indices, Energy, Metals, Agriculture, and etc. It is misleading to focus on short-term results. Now, look at this trading system below… This looks like a much better system, right? But guess what? This is the same EXACT system as the one above.

Do you see my point now? You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. I learned that a certain amount of loss will affect your judgment, so you have to put some time between that loss and the next trade. Trading has taught me not to take the conventional wisdom for granted. What money I made in trading is a testimony to the fact that the majority is wrong a lot of the time. The reason why most traders fail is that they want to be spoon-fed.

Now, is it no wonder that most traders never make it? Almost anybody can make up a list of rules that are 80 percent as good as what we taught people. I could never come up with a profitable trading strategy. How difficult can it be to come up with a set of trading rules based on the above criteria? But please do your own backtesting first before trading it live.

For example: Back in , Bitcoin was making new highs with a lot of attention from the media and the public. Conclusion The wisdom shared by Richard Dennis is still as applicable as they were decades ago. Well, the exact parameters he used to trade might not work anymore. Leave a comment below and share your thoughts with me.

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By Leo Smigel. Updated on June 30, The Turtle Traders experiment was conducted in the early s by Richard Dennis and William Eckhardt to see whether anyone could be taught how to make money trading. The experiment involved taking a random group of people, teaching them a set of rules to follow, and seeing how successfully they traded.

In the early s, Richard Dennis was a well-known trader who found considerable financial success, starting with less than 5, and turning it into over million. Dennis disagreed. Dennis based his trading on a specific set of rules. He thought anyone who learned and followed his rules could become a successful trader.

The two regularly discussed this topic, and finally, they decided to experiment to see who was right. Dennis would find a group of people, spend two weeks training them to follow his trading rules, and then let them start trading.

He could then repeat this process over and over. Dennis felt so confident in the methods that he gave the traders his own money to trade. Bill Eckhardt and Richard Dennis can be seen below. At this time, Dennis was a well-known trader offering everyday people the chance to make large amounts of money. Not surprisingly, thousands of people applied. Dennis picked only fourteen from these thousands to be part of the inaugural group.

Dennis never explained how he chose his turtles from the thousands that applied. We know that a set of true or false questions was one part of the screening process. The 63 true or false questions Dennis asked included the following:. Big money in trading is made when one can get long at lows after a significant downtrend. Diversification is better than always being in 1 or 2 markets. The majority of traders are always wrong. This is a crucial point to keep in mind.

The turtle trader experiment is often compared to picking a random person off the street, providing them with two weeks of training, and then sending them off to become millionaires.

While the turtles were not successful and well-known traders, they knew who Richard Dennis was, wanted to train with him, knew enough about trading to answer his questions, and most likely already had similar trading beliefs to Dennis.

During the two-week training, Dennis taught the turtles his Turtle Trading rules and philosophy. This training taught the turtles to approach trading with the scientific method , which would be the philosophical foundation for all of their trading. The scientific method relies on numerical data that can be observed and measured. The steps of the scientific method are:.

You accept the theory and report the findings if the data matches the hypothesis. If the evidence does not fit the hypothesis, you refine the thesis and begin the process over. Dennis taught his turtles to rely on the scientific method to minimize the psychological impacts of trading that could cause traders to make mistakes and lose significant amounts of money.

In this respect, Dennis was ahead of his time. Beyond using the scientific method, Dennis also taught the turtles to internalize some core concepts that speculators had been using for over a century. The core concepts Dennis taught were:. What are the probabilities of either happening?

This is why Dennis also gave his turtles five questions they could use to add more precision to their trading and apply the concepts more concretely. The five questions Dennis taught his traders to always have an answer to were:.

What is the state of the market? What is the volatility of the market? What is the equity being traded? What is the system or the trading orientation?

What is the risk aversion of the trader or client? What is the price and direction in which the market is currently trading?

For example, if IBM has a share price of that has moved up from with higher highs and higher lows, that uptrend is the state of that market. This means that the more the price fluctuates, the higher the level of volatility.

Generally, the higher the level of volatility, the higher the risk. When Dennis, Eckhardt, and the turtles used the term volatility, they meant a certain kind of volatility, specifically how much a market goes up and down daily. So, they would say M equals four, for this example of IBM. Therefore, implementing the rules required knowing exactly how much you had in the bank.

The strategy the turtles learned required reliance on specific rules and systems. Abiding by this strategy meant entering and exiting the market at predetermined prices. The turtles would base every decision on these systems.

While some level of risk is involved in every investment, deciding upon the correct amount was incredibly important; too little and you missed out on making a more substantial profit, but too much and you could suffer ruin.

Dennis trained the turtles to be trend-following traders. When they found a trend, they would follow it to profit from capturing most of the trend, up or down. Trend followers do not try to forecast how much a price will move.

Instead, a trend follower follows strict rules for entering the market and when to exit the market. The goal of following these rules is to limit the influence of other factors and allow the trader to make decisions without emotional judgments impacting trades.

The concept of trend following contrasts with other trading methodologies that base trading decisions on fundamentals. The trend-following trading method teaches that traders do not need to know the ins and outs of a specific company, industry, etc.

Once a trader learns to follow trends, the trader can apply that methodology across different companies, industries, assets, etc. The concept of trend following was not new. Richard Donchian was a well-known trader who used and taught the trend following approach to trading since the s.

Donchian and his method influenced many successful traders, including Dennis and Eckhardt. The rules for trading were at the heart of what Dennis taught his turtles.

He drilled into them that making a consistent profit was not about being more intelligent or luckier — it was about following the rules. So, what were these rules? The strategy had two systems referred to as S1 and S2.

Both of these systems were used for trading liquid futures. This was the more aggressive and short-term of the two trading systems. For a long position, an entrance was made you would buy when the current price exceeded the high price of the previous twenty days. If you wanted to take a short position, the reverse was true: an entrance was made a short position when the current price was lower than the previous twenty days.

But this signal would have been ignored if the last signal breakout led to a winning trade. The signal to exit in this system was a ten-day low for long positions or a ten-day high for short positions.

This system took a slightly longer approach though by no means a long-term strategy. It also came with a bit less risk than S1. The signal to enter using this system, for a long position, was when the current price exceeded the high of the previous 55 days.

For a short position, the signal to enter was when the price dipped below the low of the last 55 days. Unlike with S1, the signal to enter the market applied whether the preceding breakout was a winner.

The signal to exit for S2 was when the price hit a day low for long positions or high for short positions. The goal of both of these systems was to help the turtles know when to enter and exit the market.

Only in hindsight do they become apparent. Therefore, the entrance signal helped alert the turtles to a potential trend. Once a trend has been found, knowing when to exit the strategy is potentially even more challenging, and greed and fear can often cause poor exits. The exit strategy of both S1 and S2 aimed to eliminate the impact of these two emotions. One of the hardest parts of trading is deciding when to enter and exit the market.

These two systems were the core of what Dennis taught his turtles, but there are other factors traders must also consider, which is why Dennis taught his turtles some additional rules that allowed them to filter their trades further.

These different rules are related to position sizing and the use of stops. Position sizing requires adjusting the size of a position based on the dollar volatility of that market. Since more volatility means more risk, the goal was to find investment opportunities with similar risk per dollar invested.

This way, the turtles could diversify their portfolio among investments with similar levels of risk. Dennis taught the turtles how to quantify risk using a series of formulas and then limited the amount of risk a turtle could take on. The turtles calculated N by taking the average price movement of the last twenty days.

One unit was calculated by taking one percent of the account and dividing it by N times the dollars per point market dollar volatility. Stops were another essential part of the Turtle Trading strategy. Dennis taught his turtles to decide ahead of time when the turtle would cut any losses and move on. This rule was non-negotiable. Once the investment reached the predetermined stop price, the turtle had to exit the strategy.

There was a sleeping room for those that needed to nap, mostly for Rich, and a refrigerator full of the best beer. He lobbied hard against conservative stalwart Robert Bork. Help Learn to edit Community portal Recent changes Upload file. Here is a tip for you! When invited to participate in the diplomatic dances that made up Washington politics, he stepped on toes, and seldom refrained from voicing his opinions. Dennis always got hassled when he tried to deposit checks that size.

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