ORIGINAL TURTLES

Introduction

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The Turtle Experiment
Richard Dennis wanted to find out whether great traders are born or made.

he age old question: Nature or nurture?

In mid-1983, famous commodities speculator Richard Dennis was having an ongoing dispute with his long-time friend Bill Eckhardt about whether great traders were born or made. Richard believed that he could teach people to become great traders. Bill thought that genetics and aptitude were the determining factors. In order to settle the matter, Richard suggested that they recruit and train some traders, and give them actual accounts to trade to see which one of them was correct. They took out a large ad advertising positions for trading apprentices in Barrons, the Wall Street Journal and the New York Times. The ad stated that Trading was after a brief training session, the trainees would be supplied with Teachable an account to trade. "Trading was even more
teachable than I imagined," he says. "In a strange sort of way, it was almost humbling." Richard Dennis, Wall Street Journal.

Since Rich was probably the most famous trader in the world at the time, he received submissions from over 1000 applicants. Of these, he interviewed 80.

This group was culled to 10, which became 13 after Rich added three people he already knew to the list. We were invited to Chicago and trained for two weeks at the end of December, 1983, and began trading small accounts at the beginning of January. After we proved ourselves, Dennis funded most of us with $500,000 to $2,000,000 accounts at the start of February. The students were called the Turtles. (Mr. Dennis, who says he had just returned from Asia when he started the program, explains that he described it to someone by saying, We are going to grow traders just like they grow turtles in Singapore.) Stanley W. Angrist, Wall Street Journal 09/05/1989

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The Turtles became the most famous experiment in trading history because over the next four years, we earned an average annual compound rate of return of 80%. Yes, Rich proved that trading could be taught. He proved that with a simple set of rules, he could take people with little or no trading experience and make them excellent traders. Continue reading. The complete set of the rules that Richard Dennis taught his trainees follows, starting with the next chapter.

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Chapter

1
A Complete Trading System
The Turtle Trading System was a Complete Trading System, one that covered every aspect of trading, and left virtually no decision to the subjective whims of the trader.

ost successful traders use a mechanical trading system. This is no coincidence.

A good mechanical trading system automates the entire process of trading. The system provides answers for each of the decisions a trader must make while trading. The system makes it easier for a trader to trade consistently because there is a set of rules which specifically define exactly what should be done. The mechanics of trading are not left up to the judgment of the trader. If you know that your system makes money over the long run, it is easier to take the signals and trade according to the system during periods of losses. If you are relying on your own judgment during trading, you may find that you are fearful just when you should be bold, and courageous when you should be cautious. If you have a mechanical trading system that works, and you follow it consistently, your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit. The confidence, consistency, and discipline afforded by a thoroughly tested mechanical system are the key to many of the most profitable traders success. The Turtle Trading System was a Complete Trading System. Its rules covered every aspect of trading, and left no decisions to the subjective whims of the trader. It had every component of a Complete Trading System.

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The Components of a Complete System

The first decision is what to buy and sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you dont want to trade markets that have too low a trading volume, or that dont trend well.
Position Sizing How much to buy or sell

The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders. How much to buy or sell affects both diversification and money management. Diversification is an attempt to spread risk across many instruments, and to increase the opportunity for profit by increasing the opportunities for catching successful trades. Proper diversification requires making similar, if not identical bets on many different instruments. Money management is really about controlling risk by not betting so much that you run out of money before the good trends come. How much to buy or sell is the single most important aspect of trading. Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.
Entries When to buy or sell

The decision of when to buy or sell is often called the entry decision. Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.

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Stops When to get out of a losing position

Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.
Exits When to get out of a winning position

Many trading systems that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning positions is not a Complete Trading System.
Tactics How to buy or sell

Once a signal has been generated, tactical considerations regarding the mechanics of execution become important. This is especially true for larger accounts, where the entry and exit of positions can result in significant adverse price movement, or market impact.

Summary
Using a mechanical system is the best way to consistently make money trading. If you know that your system makes money over the long run, it is easier to take the signals and follow the system during periods of losses. If you rely on your own judgment, during trading you may find that you are fearful just when you should be courageous, or courageous when you should be fearful. If you have a profitable mechanical trading system, and you follow it religiously, then your trading will be profitable, and the system will help you survive the emotional struggles that inevitably result from a long series of losses, or large profits. The trading system that was used by the Turtles was a Complete Trading System. This was a major factor in our success. Our system made it easier to trade consistently, and successfully, because it did not leave important decisions to the discretion of the trader.

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Chapter

2
Markets: What the Turtles Traded
The Turtles traded liquid futures that traded on U.S. exchanges in Chicago and New York.

he Turtles were futures traders, at the time more popularly called commodities traders. We traded futures contracts on the most popular U.S. commodities exchanges.

Since we were trading millions of dollars, we could not trade markets that only traded a few hundred contracts per day because that would mean that Liquidity the orders we generated would move the market so much that it The primary criterion used to determine the futures that would be too difficult to enter and exit positions without taking could be traded by the large losses. The Turtles traded only the most liquid markets. Turtles was the liquidity of
the underlying markets.

In general, the Turtles traded all liquid U.S. markets except the grains and the meats. Since Richard Dennis was already trading the full position limits for his own account, he could not permit us to trade grains for him without exceeding the exchanges position limits. We did not trade the meats because of a corruption problem with the floor traders in the meat pits. Some years after the Turtles disbanded, the FBI conducted a major sting operation in the Chicago meat pits and indicted many traders for price manipulation and other forms of corruption. The following is a list of the futures markets traded by the Turtles: Chicago Board of Trade 30 Year U.S. Treasury Bond 10 Year U.S. Treasury Note

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New York Coffee Cocoa and Sugar Exchange Coffee Cocoa Sugar Cotton Chicago Mercantile Exchange Swiss Franc Deutschmark British Pound French Franc Japanese Yen Canadian Dollar S&P 500 Stock Index Eurodollar 90 Day U.S. Treasury Bill Comex Gold Silver Copper New York Mercantile Exchange Crude Oil Heating Oil Unleaded Gas The Turtles were given the discretion of not trading any of the commodities on the list. However, if a trader chose not to trade a particular market, then he was not to trade that market at all. We were not supposed to trade markets inconsistently.

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