Why the Turtle Traders experiment “so” important for trading…

...a trading experiment by Richard Dennis and William Eckhardt.

5 minute read

If you have been having a hard time in the markets, or have read one too many Quora posts alluding to the fact that the markets are impossible to beat on a consistent basis, then the story of the turtle traders should provide you with some hope, and reignite your passion for trading the financial markets. All traders need a pick-me-up at some stage throughout their career, and this article intends to do just that. Why? Well, because this isn’t a well drafted string of motivational concepts, it is a genuine true story which tells the tale of a group of traders who were taught to trade in the markets successfully from a zero experience background. This ultimately means that if trading profitably can be learned, then there is absolutely no reason why anyone else can’t learn to do the same.

Turtle Traders
The Turtle Traders Experiment aimed to discover if regular individuals, taken from a range of walks of life, could be taught to successfully trade the stock market. Risk tolerance was a crucial underlying personality trait required by the ‘Turtles’.

The date was 1983 when profound commodities trader, Richard Dennis, and his partner William Eckhardt decided to run a trading experiment that would ultimately prove that the art of profitable trading did not stem from possessing a high IQ, an ability to understand fundamentals, or any god given natural gift for trading. The pair had been in disagreement over this for quite some time and in a logical approach to win the argument, Dennis decided he would put it to the test, and prove it. The first stage was placing an advertisement in The Wall Street Journal classifieds in order to recruit a total of 14 individuals, each with a varied backgrounds and personalities, but with no prior experience in trading the markets. These would be known as the ‘turtles’, a term Dennis had coined after seeing how turtles were farmed on a recent trip to Asia.

 

After candidates had forwarded their initial application, the number of applicants was whittled down by means of a simple test which involved 63 true or false statements. Dennis required individuals who not only had an appetite for risk, but who were also able to accurately assess ‘just how much’ risk a given situation poised. The final 14 turtles included a regular salesperson, a security guard, a bartender, with one candidate even listing his status as unemployed. It was after the selection process that Dennis would begin training the turtles using the underlying principles that had made him so incredibly successful in the markets.

 

Dennis’ approach centered around a trend following strategy that forced the turtles to use a defined system in order to both enter and exit market positions. He believed that all news and fundamental aspects were already accounted for in the price of a stock, and that traders should take up positions only when the risk versus reward value warranted entry. Volatile markets should be traded cautiously with smaller position sizing, while staking larger amounts on less volatile stocks. Dennis traded price action and thus was not concerned about a market's history, fundamental influences or any negative news that might be released.

 

The system that Dennis taught was fast and hard-hitting lasting just a few weeks; after this, the experiment went live and some of the candidates, who demonstrated they could not be emotionally restrained enough to follow the principles of the system being taught were asked to leave and replaced. This particular aspect does seem to contradict Dennis’ original concept that anyone can be taught to trade profitably. It appears that there are some inherent psychological aspects that are indeed required to cut it as a professional trader, namely an appetite to take risk alongside an ability to stick to a system implicitly.

"Further ideology which was instilled into the turtles was the fact that they should not wake up on a given day feeling positive that the markets would provide them with opportunity, and equally, that their mindset wasn’t tainted after experiencing losses in the market."

The only question which they should ask themselves, is not if they made profit or loss, but rather how well did they follow their trading plan. Dennis knew that it would be their ability to do this which would ultimately underpin their overall successfulness, and this can’t be stressed highly enough to any individual wishing to improve their trading results.

 

The turtle traders experiment lasted for approximately 5 years, and it is reported that the turtles grossed more than $175m during this period. There can be absolutely no doubt that Dennis proved his original hypothesis to be, in the main part, absolutely correct. There are critics who proclaim that the markets have taken on new dynamics since the 1980s, and that relatively straightforward systems that could be used in that era are no longer relevant in today’s markets. In addition to this, it can’t be overlooked that the turtles were being trained and mentored by one of Chicago’s most legendary traders, and whether they were simply mimicking the technique of someone who had a natural talent for trading is still open for debate.

 

Whatever your opinion on the source of training, the turtles made an incredible amount of profit, and demonstrated a clear ability to consistently make money in the markets. Sure, the dynamics might have changed with so much high frequency trading now being prominent, but the concept of developing a system, that if followed strictly can provide a trader with unprecedented success must still apply. Not many individuals are lucky to have one of the best traders of all time mentor them, which means the time it takes for them to develop a winning strategy will naturally be longer, but it is extremely reassuring to know that there is probably a system out there that will make all of the hard work, stress and lost funds worth enduring. By demonstrating patience, and remaining determined in wanting to achieve results in the markets, then there is no reason you shouldn't be able to mirror the turtle's success, and make a profitable career at trading the financial markets.

 

Enjoy this read..?
If you learned something that will genuinely help your trading, then please make a small contribution to show your appreciation and help the site improve and grow into something even better.
Show Support >