Turtle Trading Strategy: History of Turtle Trading

Intro

In the 1980s two successful traders faced an interesting question that pushed them to contrary sides in regards to the answer, settling the ground for the development of an experiment that would end up becoming one of the most respected trading systems.

The 'turtles', as the participants were called, generated incredible returns over a small capital account that was given to them in the first instance towards the conclusion of 10 years.

This is the history of Turtle Trading: how a simple question evolved into a powerful trading system based on a trend strategy.

Knowing The History: How Rising Turtles Influenced A Trading Strategy

Is successful trading an innate talent or a skill that could be learned? This was the question that famous Wall Street traders Richard Dennis and William Eckhardt wondered about before they engaged in a debate that concluded with the proposition of a trading experiment as the best way to answer that question.

This experiment settled the ground for the rise of one the best trading systems ever made in the world of trading. William Eckhardt advocated for the thesis that successful traders are born but not made. On the other hand, Richard Dennis defended the idea that profitable traders could be trained and taught.

To try to prove both theses, The two Wall Street gurus placed an advertisement in the press to gather volunteers with no experience or knowledge in investing or trading. About a thousand people responded to the ad, and finally, a total of 13 people were chosen, the 'turtles' of the strategy.

Why turtles?

Denis had just returned from a trip to Asia, where he got fascinated with the process turtles were raised on a farm in Singapore, so he took the name from there, establishing an analogy with the group of aspiring traders.

Chronology of the training

• Eckhardt and Denis took this group to Chicago and gave them a two-week training.
• In January 1984, each of them received a small trading account.
• A month later, they increased the capital of these accounts to a range of between $500,000 and $2,000,000.

Results of the training

The results were different despite having been trained in the same way. Some managed to make profits and others only made losses. The one who achieved the most profitability was a 19-year-old young man, Curtis Faith, without any training in finance and who years later wrote a book with the title 'The Turtle Strategy' in which he collects all the methods and strategies that the chosen group by Denis and Eckhardt used.

Key Parts Of The History

• In 1983, Richard Dennis, a recognized futures trader, and his fellow William Eckhardt conducted an experiment to determine if trading success could be taught.
• They selected a group of people with no prior experience in the markets and trained them for two weeks.
• These individuals became known as “the turtles”. The success of the experiment confirmed Dennis's hypothesis: with the right rules and discipline, anyone could be a successful trader.

Knowing The Personalities: Who Were The Creators Of The Turtle Strategy?

Richard Dennis and William Eckhardt were successful traders who collaborated on Wall Street and made significant contributions to trading strategies.

Richard Dennis

Richard Denis was born in Chicago in January 1949, his first experience was eventful, however, he became the leader of the turtle traders and demonstrated with his experience the damage of emotions in trading. At the age of 25, he managed to turn $1,600 into $1 million.

He founded the Drexel Fund and by the early 1980s had earned $100 million and his “turtles”, novice traders, generated a profit of $175 million in one year.

In 1987, after Black Monday, he lost 50% of his and his clients' assets. He admitted that he deviated from his own strategy and made several emotional trades. Then he left the market but returned in 1994.

The lesson left by Denis to traders states that the focus of trading is faith in technical analysis, systematicity, learning ability, and the damage of emotions. However, in 1995-96 trading robots generated +108% and +112%, so he called them “the only way to win in the futures market”.

William Eckhardt

William Eckhardt, a futures trader, recognized as one of the pioneers of quantified and mathematical trading, is known for taking the opposite side in the famous Turtle Trader Experiment.

His rigorous mathematical background gives him an advantage in developing trading systems. Eckhart is more like a trading system designer.

He founded the Eckhardt Trading Company (ETC) in 1991 which managed over 1 billion in global futures and commodities. He did very well by his own path before coming out and exposing their self-developed trading systems that granted him over 60% annual average returns from 1978 to the mid-1990s.

Lessons From The Turtle Trading Experiment

Up to this point, we could wonder which lessons can traders take from the turtle trading experiment, so here are some:

• Systematic behavior: Adopting a system was the essence of the turtles. They were trained on a specific trend strategy, with strictly outlined entry and exit points.
• Discipline over emotions: Sticking to a plan was not an option but a must action. This way, turtles left no space for emotional trading affecting the decision-making process.
• Risk management: Adopting a system and sticking to a plan automatically led to risk management rules. The system contemplates rigorous stop-loss policies and position sizes according to market volatility, granting adaptability to different conditions.

Conclusion and Call to Action

When it comes to trading a system successfully, under strict conceptions of human emotional behavior and its impact on decision-making processes, the Turtle Trading Strategy demonstrated through an experiment that with the proper rules and discipline, achieving profitability in trading is more than possible, winning over the contrary thesis that successful traders are born instead.

The history of the turtle trading strategy left trustworthy lessons on avoiding emotional trading, sticking to a strategic plan, and applying it systematically.

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