The Turtle trading strategy is one which should be studied by all traders because it shows – a strategy which is simple, works and still works today. The creator of the strategy was Richard Dennis and here we will look at the trading system and one of the most famous trading experiments of all time.
The Turtle trading strategy was devised to prove a specific point to do with an argument which many have over trading generally and its – are great traders born with a special gift or can anyone learn to trade?
Nature or Nurture?
Richard Dennis set out to prove that traders could be taught to trade successfully while his friend and partner Bill Eckhard disagreed – they had a friendly bet and decided to see which one of them was right. They did this by conducting a trading experiment which has become one of the most famous in trading history.
The Turtles, were chosen from applications to an Advertisement in the Wall Street Journal. The people chosen, didn't fit the professional trader stereotype at all because none of them knew anything about trading. The group was diverse in terms of its make up and included, a professional blackjack player, a pianist, a lady auditor a game designer, a security guard and a kid who had just left high school.
For a period of two weeks, Dennis taught them his philosophy of trading and the rules of the trading strategy. After teaching them the strategy and the logic it was based on he let them trade, with each getting a million dollars of his money and the test had begun s what sort of performance did these traders achieve in terms of profits?
The Turtles traded for around 5 years and made a profit of just under $200 million for Dennis. These novices had proved his idea correct - that traders could be taught to trade successfully was true.
Many of the traders who came from the program are well known today in terms of providing Forex trading education or trading funds. They include – Mike Covel, Curtis Faith, Russell Sands, Jerry Parker, Liz Cheval and Paul Rabar.
Does the Turtle Trading Strategy Still Work?
The exact system rules taught to the Turtles by Dennis are now free online and can be back-tested to check its performance in recent years so do the rules still work?
The result of such back-test shows a drastic drop in performance after 1986 but the performance on the figures we have tested in forex markets only still show the system makes money which would actually be better than most hedge fund or discretionary managers. Our point would be that you do need to trade a good spread of contracts which are uncorrelated, to minimize drawdown but longer term the trading signals still work - the obvious question is why are the rules not as effective as they were in the past?
The answer to this lies in volatility of currency pairs. With the huge rise in electronic currency trading volatility has increased and trends are no longer as smooth as they were 30 years ago. You get long term trends but much more noise around noise around turning points.
Many of the Turtles are still trading today and making money and while they may not be using the exact same rules - the Original rules on - money management, position sizing and the concept of catching long term trends is still a sound way to trade.
Lessons You Can Learn
Here are the lessons, I think anyone can learn from studying the Turtle trading strategy and rules:
Its an inspiring story, for any trader because what it does is prove, anyone can learn to trade and that a simple trading system can make money.
The system was a long term trend following system and this is the best way to make money trading Forex – big trends come out of economic cycles which are easy to understand and also, the odds of success are better trading long term than they are short term.
It shows you don't need a lot of time to trade and can trade Forex from home part time – the Turtles spent very little time trading just a few hours a week so it's not effort that counts – it proves that its just the accuracy of your trading signals.
It shows the importance of bet size and having sound money management and its a fact in trading that while there a huge number of trading methods which can make money, all successful trading strategies have one thing in common – sound money management which preserves equity.
While a mechanical trading system can make money, you do need the discipline to follow it and this is just as important and as having a system which can make money in fact its more important because – if you don't have the discipline to follow your system you don't have one, as your trading with your emotions.
To win at Forex trading its common knowledge what you need to do to win which is to follow a a trading strategy with confidence and discipline and while most traders know this is true – they can't do. Its a bit like dieting be disciplined and follow a diet and you will lose weight but 90% of people who start a diet don't stick to it ( and 90% of Forex traders lose) and also, most people who do manage to complete a diet, don't keep the weight off and you will often see the same in currency trading – a currency trader will make money for a long period of time and then loss discipline and lose.
If you would like to know more about the above story and trading strategy, download the rules for free online and also read the excellent interview with Richard Dennis and Bill Eckhard in the Market Wizard books which are very insightful as are all the other interviews in the book.
In terms of books on the Turtle experiment the two books which are the best are – Way of the Turtle by Curtis Faith and The Complete Turtle Trade by Mike Covell. In conclusion, the Turtle trading experiment is essential Forex trading education and if you learn from it, you will be on the road to becoming a profitable trader from home.