Turtle

DEFINITION of 'Turtle'

A nickname given to a group of traders who were part of a 1983 experiment run by two famous commodity traders, Richard Dennis and Bill Eckhardt. The goal of the study was to prove whether being a successful trader was a genetic predisposition or whether it could be taught. Dennis believed that a person could be trained, while Eckhardt though it was an innate skill.

BREAKING DOWN 'Turtle'

Richard Dennis and Bill Eckhardt took out a large ad looking for trading apprentices in Barron’s, the Wall Street Journal, and the New York Times. Since Richard was a famous trader, the team received more than 1,000 applications that they eventually culled to ten. The original ten turtles were invited to Chicago for two weeks of training and were then given small accounts to trade with before proving themselves.

The turtles became the most famous experiment in financial history because they generated returns in excess of an 80% compounded rate over the next four years. Richard had proved that traders could be taught a relatively simple set of rules with little or no trading experience and become excellent traders.

Since then, several books and subscription services have been published offering to teach investors how to use the turtle trading system.

Turtle Trading System

The turtle trading system covered all of the decisions that were required for successful trading, including what markets to trade in, how to size positions, when to buy and sell, when to exit a losing position, when to exit a winning position, and tactics for buying and selling.

The well-defined trading system helped ensure that novice traders did not let their own judgment cloud decision-making. With a profitable mechanical trading system, the turtles simply had to follow the rules religiously and generate profits.

Trading signals were generated by looking for breakouts from key moving averages. Consistency was important in the process because the entire gains for a year could come from one or two trades, which meant it was important to hit all of the trades.

When placing orders, the experts recommended placing limit orders over market orders and avoiding using stops when placing the orders. Limits orders offered a better chance for fills and less slippage than market orders, which translated to fewer missed opportunities.

The final part of the process was slowly building up experience before trading with large amounts of money. Turtles began with relatively small amounts of money before being given several million dollars to use when trading.

The Bottom Line

The turtles were a nickname given to a group of traders that were part of a 1983 experiment run by two famous commodity traders, Richard Dennis and Bill Eckhardt. The study proved that trading was a learnable skill rather than an innate trait. There have been several books and subscription services published discussing the turtle trading system and the experiment.