Richard J.
Dennis, a man who made a history in the world of trend following. Many of us use trend following in their investments & trading practice. But
most of the people are not aware of this person and his contribution to Trend
and Trend analysis.
Richard Dennis
It was the
year of 1970’s when a 17 year old student of philosophy Richard J. Dennis; started
this career as a floor trader at Chicago
Mercantile Exchange. Soon after his education he
returned to trading. He borrowed $1,600 from his family, which after spending
$1,200 on a seat at the Mid-American Exchange left him $400 in trading capital.
In 1970, his trading increased this to $3,000, which he described as
"compared to $400 ... a real grubstake", and in 1973 his capital was
over $100,000. He made a profit of $500,000 trading soybeans in 1974, and by the end of that year was a millionaire,
just short of twenty-six years of age. Today he is well known as a commodity speculator once known as the "Prince of the Pit".
The story of turtles
Dennis believed that successful
trading could be taught. So, along with William Eckhardt, a friend and fellow
trader, Dennis recruited and trained 21 men and 2 women, in two groups, one
from December 1983, and the other from December 1984. In January 1984, after
the two-week training period was ended, Dennis gave each of the Turtles a
trading account and had them trade the systems they had been taught . During
this one-month trading period, they were allowed to trade a maximum of 12
contracts per market. After the trial-period ended, he gave the few of them who
had successfully traded the system during the one-month trial, accounts ranging
from $250,000 to $2 million of his own money to manage.
An advertisement by Richard Dennis
Selection
of Turtles
Dennis
placed an ad in The Wall Street Journal and thousands applied to learn trading
at the feet of widely acknowledged masters in the world of commodity trading.
In the selection
process he asked basic question like
1.
The big money in trading is made when one can get long at lows after a
big downtrend.
2.
It is not helpful to watch every quote in the markets one trades.
3.
Others' opinions of the market are good to follow.
4.
If one has $10,000 to risk, one ought to risk $2,500 on every trade.
5.
On initiation one should know precisely where to liquidate if a loss
occurs.
Trading Strategy
Dennis trained this group, known
as Turtles, for only two weeks introduction about a simple trend-following system, trading a range of
commodities, currencies, and bond markets, buying when prices increased above
their recent range, and selling when they fell below their recent range. They
were taught to cut position size during losing periods and to pyramid
aggressively—up to a third or a half of total exposure, although 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 large market moves.
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 (ATR-an indicator) 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.
Outcome of Turtles
The story of
how a group of non-traders learned to trade for big profits is one of the great
stock market legends. Dennis earned more than $175 million in only five years.
He also proved that, beginners can learn to trade successfully. Number of turtles (e.g. Jerry Parker of
Chesapeake Capital, Liz Cheval of EMC, Paul Rabar of Rabar Market Research) began and continued
careers as successful commodity trading managers, using techniques similar, but
not identical, to the Turtle System.
