The Turtle Trader Path to Fortune

By ,

You don’t need to be a highly paid, highly connected individual to make money in the stock market.

I’m of the opinion that being a small fish in this large pond is actually an advantage. It helps you invest in the places the big fish can’t.

Small, high growth companies with exponential potential.

Though I know it can feel like the professionals rig the game in their favour at times.

Today I want to tell you about a legendary trader who proved anyone could be successful in the markets.

It’s a story worth telling, as it shows you what’s possible with the right mindset.

Richard Dennis was a legendary trader in the 1970s and 80s. He made his mark in the rough and tumble world of commodities trading.

Dennis reportedly turned just $5,000 into a $200 million fortune in just one decade.

That’s pretty impressive.

But he’s actually more well-known for an experiment he ran in 1983 with investing partner William Eckhardt.

The mythical ‘Turtle Trading’ experiment

Dennis believed absolutely anyone could trade well. If they knew the right methods and techniques.

His partner Eckhardt disagreed.

He contended that Dennis had a special ‘gift’. An innate trading ability.

In an effort to settle the debate Dennis set up the experiment.

It went like this…

Dennis would find a group of people to teach his rules to. And give them real money — his own money — to trade with. That’s what I call faith in your system!

The training only lasted two weeks. But it was repeated over and over.

The graduating students were then set loose on the markets.

You might be wondering why it was called Turtle Trading? It’s nothing to do with the speed of the traders.

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.

To find students he placed an ad in the Wall Street Journal. An opportunity to learn to trade at the feet of a master trader. Naturally, thousands applied.

Without going into the finer details of the program, students were basically taught a trend following, break-out strategy.

This is a technical way of using charts to make trades.

The gist is if the price breaks above a range point, you buy. And if it break below a range point, you sell. 

Still good rules for investing today

Break-out trading is still a common way of trading, even today. It basically identifies when ‘something’ — and no one might know what that ‘something’ is at the time — is happening to change a previous price equilibrium in a share or commodity.

In The Complete TurtleTrader: The Legend, the Lessons, the Results (2007), author Michael Covel offers some insights into the specific rules:

  • Look at prices rather than relying on information from television or newspaper commentators to make your trading decisions.
  • Have some flexibility in setting the parameters for your buy and sell signals. Test different parameters for different markets to find out what works best from your personal perspective.
  • Plan your exit as you plan your entry. Know when you will take profits and when you will cut losses.
  • Use the average true range to calculate volatility and use this to vary your position size. Take larger positions in less volatile markets and lessen your exposure to the most volatile markets.
  • Don’t ever risk more than 2% of your account on a single trade.
  • If you want to make big returns, you need to get comfortable with large drawdowns.

These are still good rules to apply to your investing. Even if you consider yourself an investor rather than a trader, knowing these types of rules can add a bit of value to your buying and selling decisions.

An advantage of being a small trader is a nimbleness big investors don’t have. Use this advantage!

So how did the experiment go?

According to former turtle Russell Sands, as a group, the two classes of turtles Dennis personally trained earned more than $175 million in only five years.

Dennis had proved beyond a doubt that beginners can learn to trade successfully.

This story is one of the great stock market legends.

It’s encouraging for any beginner or novice to know that great traders are made, not born. This means anyone has it in them to make a fortune, given the right instructions.

But don’t let this lull you into a false sense of confidence.

Applying the lessons are a lot harder in practice than in theory. Especially when real money is on the line. If you are lucky enough to find a system that works, you’ll find the harder thing is faithfully applying it.

Good investing,

Ryan Dinse,
Editor, Money Morning

About Ryan Dinse

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately…

Bubs Announces $68 Million Capital Raise

[ASX:BUB] is rattling the can to raise $68 million to support ‘growth opportunities.’

Is Stock Analysis Worth It? Finding Your Investment Edge

Is stock analysis worth your time? The question boils down to a key academic topic: market efficiency.

Bubs (ASX:BUB) Shares up on US Supply Deal Update

Infant nutrition producer Bubs Australia [ASX:BUB] came out with another supplier update today, signing supply agreements with two more US retailers.

NeuRizer [ASX:NRZ] Shares Soar on $1.5 Billion Binding Offtake

NeuRizer [ASX:NRZ] opened 35% higher on Monday after announcing a binding $1.5 billion offtake agreement with Daelim.

[WATCH] Closing Bell — In the Eye of the Storm

It’s a sea of bad news out there at the moment. Equities have cracked and they are continuing to drift lower.

AVZ Minerals Extends Voluntary Suspension

Lithium developer AVZ Minerals [ASX:AVZ] has extended its voluntary suspension on Friday as it continues to work through regulatory and ownership issues concerning its Manono Lithium Project.