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Turtle Rules: Discipline and Consistency in Trading

Posted By Barry Ritholtz On May 15, 2005 @ 10:30 am In Finance | Comments Disabled

One of my favorite books to recommend to newbie investors is Jack Schwagers Market Wizards [1].

The reaction after reading it is invariably the same: "Yeah, that was interesting, but it didn’t teach me about trading _____."

It wasn’t supposed to. You should learn that trading any asset — stocks, bonds, currencies, futures, options, indices, currencies, whatever –  involves rules of discipline, risk management, structural planning, anticipating losses, implementation.

One of the original Market Wizards was Richard Dennis [2]. He had been to a huge turtle farm in Singapore, where 100s of 1,000s of the little creatures were being raised in vast tanks. He wanted to know if traders could be trained — raised — the same way (hence the name, Turtle traders).

In a scene reminscent of Trading Places [3], Dennis made a bet with his partner, William Eckhardt over whether Turtles Traders could be "farm raised:"

Can the skills of a successful trader be learned? Or are they innate, some sort of sixth sense a lucky few are born with? Richard Dennis, the legendary Chicago trader, who turned a grubstake of $400 into $200 million in 18 years, has no doubt. Following an experiment with a group of would-be traders recruited from around the country, he’s convinced trading can be learned. Over the past 1 1/2 years, a group of 14 traders he taught earned an average annual compound rate of return of 80%. In contrast, about 70% of all non-professional traders lose money on a yearly basis.

Trading was even more teachable than I imagined, he says. In a strange sort of way, it was almost humbling. Mr. Dennis says he debated the learning vs. innate ability question with some of his associates for years. While they argued that his skills are ineffable, mystical, subjective or intuitive, he says his own answer was far simpler. The 40-year-old Mr. Dennis attributes his success to several trading methods he developed, and, perhaps more important, the discipline to follow those methods. To prove his point, Mr. Dennis decided to run a real life experiment. In late 1983 and again in 1984, he placed ads in the Wall Street Journal, Barron’s and the New York Times seeking people who wanted to be trained as traders. The job required that they move to Chicago, where they would receive a small salary and a percentage of any profits while Mr. Dennis taught them his methods.   -Wall Street Journal Article

Dennis used what was essentially a Trend Following [4] system. Trend is an important component of my own methodology — but its one of several factors.

A fascinating aspect of the Turtles was that, int he beginning years, they became extremely protective of their methodology. Eventually, the "secret" leaked out, websites began to sell it, it became widely distributed. (Its a mechanical system, and many people find that difficult to follow.)

Today, all of the Turtles rules are available on line — for free. They are also the primary source of the book Trend Following [4].

You can download the Turtle Rules at the links below. (Here’s a pdf in case there are bandwidth issues).

Download turtlerules.pdf [5]


Turtle Rules [6]

Turtle Trading is Trend Following: Learn Pros, Cons and Myths [7]

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/05/turtle-rules-discipline-and-consistency-in-trading/

URLs in this post:

[1] Market Wizards: http://www.amazon.com/exec/obidos/ASIN/0887306101/thebigpictu09-20

[2] Richard Dennis: http://turtletrader.com/turtle-trading.html

[3] Trading Places: http://www.amazon.com/exec/obidos/ASIN/B00003CXD3/thebigpictu09-20

[4] Trend Following: http://www.amazon.com/exec/obidos/ASIN/0131446037/thebigpictu09-20

[5] Download turtlerules.pdf: http://bigpicture.typepad.com/comments/files/turtlerules.pdf

[6] Turtle Rules: http://www.originalturtles.org/docs/turtlerules.pdf

[7] Turtle Trading is Trend Following: Learn Pros, Cons and Myths: http://www.originalturtles.org/system.htm

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