Richard Dennis – The Turtle Trader – Trend Following And Trading Strategies

Last Updated on July 17, 2022 by Oddmund Groette

Richard Dennis is one of the world’s most famous traders, mostly because of the Turtle Experiment. In this article, we look at Dennis’ life and trading career, and additionally, we explain what the Turtle Experiment was. We end the article by listing a few of the trading lessons and quotes from Richard Dennis. Dennis was also interviewed by Jack Schwager in Market Wizard.

There are many stories of veteran traders who experienced boom and bust in the financial markets, but the incredible story of Richard Dennis, an astonishingly rich genius and pioneer of commodity trading, is outstanding. Richard started early and gradually traded himself to the height of his career with astute management skills and clear strategies.

Richard Dennis’ early life and career:

Born in January 1949, Richard Dennis became an order runner on the Chicago Mercantile Exchange trading floor in 1966, at the age of 17 years. When he was only 23 years old, he reportedly borrowed $1,600 and turned it into $200 million in about ten years of trading commodities. By the time he was 26 years old, he was already a millionaire trader.

Dennis earned a bachelor’s degree in philosophy from DePaul University, then accepted a scholarship for graduate study in philosophy at Tulane University, but changed his mind and returned to trading.

Dennis made significant profits when he bought successively new weekly and monthly highs in the trending inflationary markets of the 1970s, an era of repeated crop failures and the “Great Russian Grain Robbery” of 1972. Those riches didn’t come easy; Dennis was notorious for experiencing intense amounts of volatility.

Richard Dennis is popularly known as the “Prince of the Pit.” Following the stock market crash in 1987, he incurred significant losses, making him retire for many years.

During this period, Dennis was busy managing pools of capital for others in the markets for a while, but he stopped abruptly in the spring of 1988 after his clients suffered heavy losses. He reportedly lost about $10 million during the Black Monday crash of 1987 and also went on to lose approximately $50 million in 1987–1988. He also managed funds for some time in the mid and late 1990s, closing these operations after losses in the summer of 2000.

Dennis held positions for more extended periods, unlike many scalpers that would open and close during the trading day. He also has some publishing credits as he published various articles in The New York Times, The Wall Street Journal, and the Chicago Tribune.

Richard Dennis and the Turtle Experiment (Turtle Traders):

You could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline.

While Dennis is known for making and losing a lot of money, he’s also known for something else — the Turtle experiment.

The above quote made Richard Dennis become famous because he made a bet with a fellow trader. Dennis believed that successful trading could be taught. To settle a debate on that point with William Eckhardt, a friend, and fellow trader, he took a handful of men and women from obscurity and taught them to trade futures in two batches in 1984 and 1985. Can you train someone “from the street” to become a good trader?

Richard Dennis argued you could. However, they did a screening based on personality tests for traders before they hired someone. The first group of 1984 only had two weeks of training. The second-year they found out they could manage only one week of training. 23 traders in total were hired, and 20 of them went on to do well.

The result was the famous Turtle Experiment which Dennis won. According to a former student, these so-called Turtle Traders went on to earn profits of $175 million in 4 years, or an 80% compounded rate of return.

One of the students was Curtis Faith. He was very successful and he published a book about mechanical trading and trend-following in 2007. We strongly recommend his book, called The Way Of The Turtle. We regard it as one of the best trading books out there.

What was the Turtle trading all about? It was all about trend following in certain commodities and forex (and also stock indices). In addition, the Turtle Traders were taught to cut position size during losing periods and to pyramid aggressively by up to a third or a half of total exposure. However, only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is range-bound, often for months at a time, and profits during the large market move. We recommend reading our article about why trend-following works:

You might wonder why they were called Turtle Traders. Dennis said that “we are going to grow traders just like they grow turtles in Singapore”.

Other famous traders and their trading strategies

Quotes from Richard Dennis:

You should expect the unexpected in this business; expect the extreme. Don’t think in terms of boundaries that limit what the market might do.

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To find the things that we were looking for, we could choose from intelligent or extremely intelligent people. We picked the ones with extreme intelligence just because they were available.

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I always said you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline.

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Professional traders may do some very intelligent things, but they have a tendency not to think systematically about what they are doing.

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Trade small because that’s when you are as bad as you are ever going to be. Learn from your mistakes.

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Demonstrably, commodities are trending and, arguably, stocks are random.

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There will come a day when easily discovered and lightly conceived trend-following systems no longer work. It’s going to be harder to develop good systems.

Other famous traders:

 

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