Is Turtle Trading Still Profitable?

In the world of psychology, the nature vs. nurture debate rages on. Are personalities and characteristics based on genetics, or do childhood and life experiences create the individual? 

Two of the world’s most successful traders had a similar debate, though their dispute centered around investing. Specifically, Richard Dennis, celebrated for his extraordinary skill in commodities trading, believed that anyone could be a successful trader with the right training. Meanwhile, William Eckhardt was certain that the ability to succeed in the market required innate talent. 

By the time Dennis’ debate with Eckhardt came to a head in 1983, he had built a $100 million fortune from his initial $5,000 stake. Later, Dennis turned that $100 million into $200 million, and he remained convinced that others could match his achievement with the right training. 

Dennis decided to prove the validity of his viewpoint that trading could be taught with an experiment that he called Turtle Trading. What were the results? And is Turtle Trading still profitable? 

What Is Turtle Trading?

The Turtle Trading experiment got its name from an experience Dennis had while traveling the world. In Singapore, he visited turtle farms and saw how quickly and efficiently the animals could be turned out through careful cultivation. 

Dennis created a two-week program that could be repeated with additional students again and again. Then he set out to find his “turtles” – the first group of students he would train in his methods. Since he was already well-known in the world of investing, the fact that his name was attached to the training gave it instant legitimacy.

More than 1,000 prospective trading apprentices responded to ads Dennis and Eckhardt placed in publications like The New York Times, Barron’s, and The Wall Street Journal. The two narrowed the pool of applicants down to an inaugural class of around a dozen trading apprentices.

As soon as that group completed their two-week training, another class began. Dennis was so confident in his students’ success that he funded their trading accounts after their graduation from the program. Then, Dennis and Eckhardt watched the results come in. 

According to one of the original turtles, the Turtle Trading experiment proved Dennis’ theory correct. That graduate said that based on his research, the first two classes of turtles collectively generated $175 million in gains within five years. 

Other research showed that the original turtles realized returns with greater than an 80 percent compounded rate in the four years that followed their training. Based on these results, the experiment demonstrated that certain trading techniques can be taught – no innate skill or special gift for prediction required. 

The question is, does the original Turtle Trading method work in today’s market? Is Turtle Trading still profitable, and if so, what are the Turtle Trader Rules? 

What Are The Turtle Trader Rules?

The essence of Turtle Trading can be summarized this way: investors should buy breakouts, then close out their trades at the point that prices begin to consolidate or reverse.

Since markets have both uptrends and downtrends, this method is also effective with short trades. There is flexibility in the time frame when determining entry signals, but exit signals must be much shorter if investors are to maximize their profits. 

Of course, this simple summary isn’t enough to turn a few thousand into a multi-million dollar fortune. Such success only comes from strict adherence to the detailed Turtle Trading rules that illustrate how to buy futures as they break out on the upside of trading ranges and how to short sell as they break out on the downside of trading ranges.

The exact rules that make up the Turtle Trading strategy aren’t widely published. Until recently, Dennis kept them as a closely-held secret. However, some elements of the program are in public circulation. For example: 

• The maximum amount one should risk in a single trade is no more than two percent of your total account. 
• The average true range offers important information when calculating volatility.
• Larger positions are appropriate in less volatile markets, while smaller positions are advisable in highly volatile markets. 
• Don’t rely on the media for trading information. Focus on prices when making decisions. 
• There aren’t one-size-fits-all parameters for buy and sell signals. These may be customized by individual traders based on personal preferences, goals, and risk tolerance.  
• Exit planning is just as important as entry planning – if not more so. Setting thresholds for taking profits and cutting losses, then staying disciplined enough to act when prices reach those thresholds is critical to long-term success. 
• Big drawdowns are part of the process – particularly if you are after big returns. If you aren’t comfortable with this sort of activity, Turtle Trading is probably not right for you. 

Richard Dennis personally taught two Turtle Trading classes with a total of 23 students. Though he didn’t pursue the training once he had proven his point, a large crop of books, courses, and online forums were developed by those who found success with the Turtle Method.

Their goal was to pass along the complete list of rules and how to apply them to as many investors as possible – and to generate a profit along the way. 

Does Turtle Trading Work on Stocks?

The original Turtle Traders didn’t invest in stocks. Instead, they traded US bonds, commodities like sugar, coffee, crude oil, gold, and silver. They also traded certain major currencies, as well as S&P 500 futures. 

The fact that Dennis didn’t cover stocks in his initial courses doesn’t mean stocks are out of the running. In fact, Turtle Trading does work on stocks with some adjustments. Specifically, special care must be taken with correlated securities. 

Determining the size of any given position is one of the most important steps in Turtle Trading, but even the most carefully considered sizing strategies can be thrown off when separate securities are closely correlated.

Is Turtle Trading Still Profitable?

Answering whether Turtle Trading is still profitable isn’t a straightforward yes or no. It really depends on who you ask. Many successful investors continue to swear by a modernized version of the method, but there is a vocal contingent that insists the time of Turtle Trading is over. 

Detractors cite a changing marketplace – for example, the decline in prominence of blue-chip stocks – as well as an unfortunate truth about highly successful investing strategies: As more investors apply a given strategy, market behavior changes to accommodate the activity. That means, in some cases, that investors see muted returns or have more difficulty with applying strategies at the right moment. 

If underlying philosophies around risk management are the essence of Turtle Trading, then plenty of investors will find that Turtle Trading is still profitable. The program requires discipline when it comes to executing on predetermined exit strategies – and that tends to be where most who struggle with Turtle Trading falter. 

That’s because trend-following strategies depend on correct trend identification, but even the most gifted market analysts often have as many wins as they do losses. Many apparent trends are false starts, and a trend that seemed to be a sure thing never actually materializes.

That’s okay with a meticulous exit strategy, but those who lack the discipline to act on exit strategies, regardless of profits and drawdowns, will eventually find that they lose far more often than they win.

Where Are The Turtle Traders Now?

Nearly 40 years after the initial experiment, the original Turtle Traders are doing all sorts of things. Some remain in the financial world, while others have moved on to unrelated careers – everything from journalism and writing to non-profit work. 

Jim DiMaria was one who stuck with investing long after the experiment was complete. He launched his own firm, which gave him the opportunity to apply the Turtle Rules – updated for modern conditions – to grow his clients’ wealth. 

When reflecting on the Turtle Trading experiment, DiMaria said he considers it a success. In an interview with WBEZ Chicago, he said, “Yes, trading can be taught…but maybe not to just anyone.”

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