Turtle trading refers to the way a group of traders in the 1980s traded. This group, who is known as the turtle traders, made $175 million in 5 years using a fixed strategy that was taught to them.
History of the Turtle Traders
In the 1980s, Richard Dennis and William Eckhardt developed a systematic trading system that turned $5,000 into $100 million (a lot of money in the 1980s).
Dennis believed successful traders can be trained while Eckhardt believed they are born with a gift for trading. To settle this debate, they started an experiment that will go on to be world famous.
Dennis picked people off the streets, interviewed them and selected a handful for the experiment. He and Eckhardt taught these traders (they were called the Turtles) how to trade for two weeks.
They gave the Turtles money to manage after the training.
Why the name “Turtles”? Dennis, visited a turtle farm in Singapore and believed he could “grow” traders and efficiently as they grow turtles there.
The result of the experiment
The Turtles made $175 million in 5 years.
The Turtle Trading Strategy
The Turtle Traders used a long term breakout strategy. They mainly traded Forex and commodity futures.
Their strategy is based on fixed rules and the traders are required to abide by it strictly.
Entries and Exits
Whenever an asset rise significantly, they will long (i.e. buy) the asset. They will long more as the asset continues to rise.
Whenever an asset falls significantly, they will short (i.e. bet that it falls) the asset. They will short more as the asset continues to fall.
In both long and short trades, they will close the trade when it moves significantly against them. This means that they give back some profits near the end of the trade. However, it also means that they will stick will a trend for a long time.
As it takes discipline not to close a trade when taking on a significant loss. Many Turtle Traders fail to make the cut due to the lack of discipline in this aspect.
Position Sizing and Risk Management
The Turtle Traders strength is their position sizing (how much to bet) and risk management
They use the volatility of the markets to determine how much to trade. The more volatile the markets are, the less they bet per trade.
Their trades are spread over many different assets so as to diversify their risks. The traders’ overall positions can’t be overwhelming long or short.
The Original Turtle Trading Strategy
The Turtle Trading Strategy Today
There is little evidence that the original trading strategy works today.
However, many former Turtle Traders continued to be successful traders, using techniques that are similar but not identical, to the original Turtle Trading Strategy
Links to Other Explanations