Everybody can trade: the legendary Turtle Trading experiment.
In 1982 two well-known experts, Richard Dennis and William Eckhardt, held an experiment proving that anybody could be taught to trade.
Dennis is considered one of the most successful financial masters in history. He entered trading with only 5000 dollars and turned them into a fortune of 10 million. He often discussed with William Eckhardt the causes of his success. Dennis strongly believed that anybody could be taught to trade futures, while Eckhardt considered his opponent to have a special gift ensuring profit from deals.
The essence of the Turtle experiment
Dennis would find a group of beginners and teach them his principles and approaches. Then he offered to trade with real money. The expert was so confident in his approach that he was ready to lend the graduates his money. The training would last for two weeks and could be repeated. Dennis called his students “turtles”, considering that traders could be grown as quickly and efficiently as turtles at the farms.
The expert placed an ad in the Wall Street Journal and got thousands of requests from people desiring to get knowledge and precious experience from the renowned master. The expert chose only 14 students using the yes-or-no question like the following:
- It is not helpful to watch every quote in the markets one trades.
- If one has $10,000 to risk, one should risk $2,500 on every transaction.
- Others’ opinions of the market are good to follow.
The expert taught his students rather specifically to implement the strategy of following the trend. Dennis kept to the principle “the trend is your friend”. He taught his group to buy futures breaking out to the upside of trading ranges and sell short downside breakouts. The exact parameters that the trader paid particular attention to having been kept secret and protected by copyright. One of the analysts described several concepts of Dennis trading:
- The expert always looked at how prices behaved rather than listening to news media in investment decisions.
- He always had some flexibility for parameters considering what would work best in the current market.
- The market expert always planned his exit like he planned his entry.
- He taught students to always calculate volatility to optimise the position size and did the same.
- Desiring a significant return, the expert taught the students to be ready for the large drawdowns.
The results of the experiment
According to the evidence of Russell Sands, a former turtle, two groups trained by Dennis earned cumulatively more than $175 million in only five years. The expert proved that beginners could be taught successful trading. Sands contends that the Dennis approach still works and ensures high profit within the first year.
Even now, you can apply general Dennis rules to shape your strategy and multiply your earnings. The general idea is to buy breakouts and close the trade when prices start consolidating or reversing. Short trades must be made according to the same principles under this system because a market experiences both uptrends and downtrends. While any time frame can be used for the entry signal, the exit signal needs to be significantly shorter to maximise profitable trades.
Are there any risks?
No wonder the master warned on the drawdowns. They should be expected with any financial market strategy, but when you apply trend following, you should expect especially deep drawdowns.
