Turtle Traders: A Market Legend with High Returns

The Turtle Traders, a legendary group of traders, were able to achieve high returns by using a unique approach to trading. They were led by a seasoned trader named Richard Dennis.

Their strategy involved identifying trends in the market and making trades based on those trends. The Turtle Traders were known for their discipline and patience, which helped them to make consistent profits.

Richard Dennis, the mastermind behind the Turtle Traders, had a remarkable track record of making successful trades.

The Turtle Traders Method is a powerful approach to trading that has been refined over the years. It's based on the idea of trading solid, definitive breakouts and applying wider stops as the trade becomes more profitable.

The Turtle Method, similar to the Fulcrum Method, uses Donchian Channels to identify breakouts. This method has been successful in the past, with average annual returns of 29% to 58% from January 1996 through June 2006.

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To trade successfully using the Turtle Method, you need to have a system that has a positive expectancy over the long run. This means that the system must be able to make more profitable trades than losing ones.

The main lessons of Turtle Trading can be summarized as follows:

By following these lessons and using the Turtle Method, you can improve your chances of success in trading.

The Turtle Trading System is designed to capture large trends in the market, which can result in significant profits for traders who can successfully identify and follow these trends. This strategy has been proven to generate high returns, with the original Turtle Traders achieving an average annual compound return of 80%.

One of the key benefits of the Turtle Trading System is its potential for high returns, making it an attractive strategy for traders looking to maximize their profits.

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Risk management is a crucial aspect of the Turtle Trading System, which emphasizes controlling losses and preserving capital. The system uses stop-loss orders to limit potential losses on trades.

This approach helps traders avoid catastrophic losses and preserve their trading capital. The Turtle Trading System strongly emphasizes risk management, which can help traders avoid catastrophic losses and preserve their trading capital.

Legendary trader Peter Brandt often says his job is to be a good loser, taking a lot of losing trades and not feeling defeated. This mindset reframes a trader's primary role from a profit-taking czar to a monk-like loss taker.

The Turtle Trading System limits potential losses on trades with stop-loss orders, which exit the trade automatically when a specific price is reached.

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The Turtle Trading System has several advantages that make it an attractive trading strategy for many traders. One of the key benefits is its potential for high returns.

The system is designed to capture large trends in the market, which can result in significant profits for traders who can successfully identify and follow these trends. This is evident in the results achieved by Richard Dennis' Turtle Students, who generated an average annual compound return of 80%.

This high return potential is a major advantage of the Turtle Trading System. It's a testament to the effectiveness of the strategy when executed correctly.

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The Turtle Trading System has its downsides, and it's essential to be aware of them. Richard Dennis's trading strategy is a trend-following system that can be prone to large losses if not managed correctly.

One of the main disadvantages of the Turtle Trading System is that it's designed to capture large trends in the market, which can be unpredictable and volatile. This can lead to significant losses if the trend suddenly reverses.

While the system is designed to minimize losses, it's not foolproof, and traders need to be prepared for potential drawdowns.

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The Turtle Trading System can be challenging to follow, especially for those who are impatient or impulsive.

It requires traders to be disciplined and patient, as it may take time for trends to develop and for trades to generate profits.

Traders who lack discipline may struggle to stick to the system's rules and principles.

This is evident in the fact that the system requires traders to be disciplined and patient, as it may take time for trends to develop and for trades to generate profits.

Impatience can lead to poor decision-making and a higher risk of losses.

The Turtle Trading System is not for those who expect quick profits, as it may take time for trades to generate profits.

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The Three Disadvantages of Richard Dennis' Trading Strategy are a crucial consideration for traders.

While the Turtle Trading System has several advantages, there are also some potential disadvantages.

Richard Dennis's trading strategy is a trend-following system designed to capture large trends in the market while minimizing losses.

This approach can lead to significant losses if the trend reverses unexpectedly.

One of the main drawbacks is that it can be a high-risk strategy, especially for inexperienced traders.

The system's reliance on large market trends also means it may not perform well during periods of low volatility.

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Richard Dennis was the mastermind behind the Turtle Traders, selecting 14 novice traders through an advert in the Wall Street Journal.

To become one of the original turtles, applicants had to go through a selection process, which likely included answering true and false questions.

Richard Dennis emphasized the importance of following instructions, teaching the turtles to use hard-and-fast trading rules, and promising success to those who stuck to the plan.

The original founders of the Turtle Trading System were a group of novice traders handpicked by Richard Dennis for his experiment. They were taught to follow a set of hard-and-fast rules to achieve success in trading.

These traders were selected from thousands of applicants who responded to an advert in the Wall Street Journal. The exact criteria used by Richard Dennis to select the original turtles are not publicly known, but it's believed that a series of true and false questions were used to narrow down the applicants.

The original turtles were taught to use the Turtle Trading System, which emphasizes position sizing, entry and exit rules, and risk management. They were instructed to follow a trend-following strategy, buying futures that break out to the upside of trading ranges and selling short downside breakouts.

The original turtles were not experienced traders, but they were willing to learn and follow the rules. They were taught to use indicators such as Moving Averages, Bollinger Bands, and Donchian Channels to identify breakouts in trend.

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Here are some key characteristics of the original turtle trading rules:

These rules were designed to help the turtles identify and follow long-term trends in the market. They were also taught to have flexibility in setting the parameters for their buy and sell signals and to plan their exit as they planned their entry.

Some of the key principles of the Turtle Trading System include:

The original turtles were successful in using the Turtle Trading System, and their story has been documented in several books, including "The Complete TurtleTrader" and "Way of the Turtle".

He was one of the industry's top traders, making $80 million in 1986 alone. His success was matched by other industry titans like George Soros and Michael Milken.

But Dennis's strategy was always high-risk, and he often found himself millions of dollars in debt on some days. He believed the wins outweighed the losses, but that wasn't always the case.

Dennis lost more than half of his assets between 1987 and 1988 when his turtles completed their five-year experiment. This loss was a significant blow to his trading career.

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William Eckhardt's story is a fascinating one. He became famous with the turtle trading experiment, a legendary trading project he worked on with Richard Dennis.

After the experiment, Eckhardt declared it over in 1993, admitting he was wrong in assuming a trader added something unique that couldn't be encapsulated in a mechanical program. The turtle trader program was a huge success, producing a compound annual return of 17.35 percent over the last 20 years.

Eckhardt founded his commodity trading advisor (CTA) in 1991, which has been successful, producing a profit of 21.09 percent in 2010.

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The Mt. Lucas Management Index is a famous trend-following index that's surprisingly simple. It's based on a 200-day moving average strategy that tracks 25 futures contracts.

The index measures trend-following indirectly, making it a good indicator of turtle trading strategies. It's a testament to how effective simplicity can be in finance.

To determine a long or short position, the index looks at the price of each contract in relation to its 200-day moving average at the end of each month. If the price is above the average, a long position is held until the end of the next month.

It's a straightforward system that's easy to understand and implement, making it a great example of how trend-following can be applied in practice.

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Turtle traders are known for their trend-following strategies, which involve identifying and riding long-term trends in the market. Curtis Faith backtested six specific turtle trading system backtests in his book, The Way Of The Turtle, with impressive results.

The six strategies performed as follows:

Backtesting is a crucial part of evaluating the effectiveness of a trading strategy. In fact, Curtis Faith backtested his strategies over a 10-year period from 1996 to 2006, and the results were impressive.

The Experiment was a fascinating study that tested the effectiveness of the Turtle trading strategies. Dennis, the founder of the Turtle system, believed that anyone could be taught to trade the futures markets with success.

He gathered a group of people to learn his rules and then trade with real money. Dennis was so confident in his system that he gave the traders his own money to trade. This experiment was designed to settle the debate about whether Dennis had a special gift for trading or if his system was the key to success.

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The experiment lasted for two weeks and could be repeated over and over. Dennis called his students "turtles" after recalling turtle farms he had visited in Singapore and deciding that he could grow traders as quickly and efficiently as farm-grown turtles.

This experiment laid the foundation for the Turtle trading system and its impressive results. The strategies developed during this time would go on to produce remarkable returns, as we'll explore in the next section.

Finding the right strategy can be a daunting task, especially for new traders. It's essential to start with a solid foundation, and that's where backtesting comes in.

The Turtle Trading System is a great example of a strategy that's been extensively backtested. Richard Dennis, the founder of the system, placed an ad in The Wall Street Journal to find 14 traders who would make it through the first "Turtle" program. Only 14 traders were selected from thousands of applicants.

To get into the program, applicants had to pass a series of true-or-false questions, which tested their knowledge of trading principles. For example, one of the questions asked if the big money in trading is made when one can get long at lows after a big downtrend. According to the Turtle method, this statement is false.

A key principle of the Turtle Trading System is to focus on long-term trends in the market. This means that traders who use this system may miss short-term trading opportunities. However, the system's emphasis on risk management and position sizing can help traders avoid significant losses.

Here are some key backtesting metrics for the Turtle Trading strategy:

These metrics give us an idea of the strategy's performance and potential risks. By understanding the strengths and weaknesses of a strategy, traders can make more informed decisions about their trading approach.

Trend Following is a key component of the Turtle Trading System, and it's based on the idea that the trend is your friend. The system uses a combination of technical indicators to identify trends and determine entry and exit points.

The Turtles used a variety of technical indicators, including moving averages, to identify trends and decide when to enter and exit trades. In particular, they used a 50-day moving average to identify trends in the market.

One of the most effective ways to use trend following is to buy when a weekly close is above the 50-day moving average, and hold the position until a weekly bar closes below that same 50-day moving average. This strategy can be applied to various markets, including stocks and futures.

The Turtle Trading System can be automated, which can help traders save time and reduce the potential for human error. Automated trading systems are perfect for serious traders who don't yet have the free time to commit to a more manually back-tested trading strategy.

The system's rules and principles can be implemented using software programs, which can help traders identify and follow large trends in the market. By automating the system, traders can focus on other aspects of their trading strategy.

Here are some examples of trend following strategies that have been backtested:

These results are based on backtesting the strategies from 1996 to 2006, and they demonstrate the potential of trend following in capturing large trends in the market.

Barclay CTA Index has a track record back to 1980, making it a reliable source for systematic trading strategies.

The index has a low correlation to stocks, with a correlation coefficient of 0.05938063 to the S&P 500. This means that the index's performance is not heavily influenced by the stock market.

In fact, Lynx, a Swedish systematic trend-following hedge fund, has a slightly negative correlation to stocks, with a correlation coefficient of -0.0716767063 to the S&P 500.

Both Barclay CTA Index and Lynx have demonstrated their ability to achieve low correlation to stocks, with some notable years including 2008, where Barclay CTA Index gained 14.09% while the S&P 500 lost 36.55%.

Here's a comparison of the performance of Barclay CTA Index, the S&P 500, and Lynx over the years:

By investing in assets with low correlation to stocks, you can diversify your portfolio and reduce your overall risk.