Turtles Trading

Just to provide some light reading for the weekend, I wanted to talk briefly about the famous "Turtle" traders, for those who may not be familiar with them.

In the early 1980’s, a well-known commodities trader by the name of Richard Dennis gathered a group of individuals and trained them to trade commodities using his specific trend-following methodology. This came about because Dennis intended to prove to his friend, another trader by the name of William Eckhardt, that good traders were made, and not born. The individuals that were recruited for this experiment were attracted to the opportunity by major newspaper ads. The final group was narrowed down through interviews with Dennis, and the ones that made the cut were eventually dubbed, the “Turtles.” This was due to the fact that Dennis had just returned from Singapore, and he wished to “grow traders just like they grow turtles.”

The set of trend-following trading rules that Dennis taught the Turtles are now widely-known. Back in the 80’s, these rules helped the Turtles earn over $100 million in trading profits as a group. The trading rules, which were based largely upon Richard Donchian’s channel breakout methods, are generally simple and easy to follow. One of the primary differentiators between those Turtles that were successful and those that were not as successful was the ability to follow these rules to the letter, without emotions or individual biases. In a nutshell, the entry rules, at their most basic level, are described by the following two sets of general system guidelines:

System #1 (shorter-term) – Enter a long position on a breakout above the price high of the preceding 20 days, or enter a short position on a breakdown below the price low of the preceding 20 days. If the most recent breakout was a true breakout that resulted in a winning trade, any current breakout entry signal would be ignored. If the most recent breakout was a false breakout (i.e., one that moved against the position by a certain predetermined amount after the breakout signal was given), the current breakout signal could be taken. If a breakout signal is not taken due to a winning trade on the most recent breakout, a trade would be taken anyway on a 55-day breakout signal to capture any major price moves.

System #2 (longer-term) - Enter a long position on a breakout above the high of the preceding 55 days, or enter a short position on a breakdown below the low of the preceding 55 days. Unlike System #1, regardless of whether the most recent breakout was a winning trade or a losing trade, all breakout signals are taken.

- James Chen, CTA, CMT

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