Were the Turtles just lucky?…

Most people will have heard of the mythical Turle Traders, a group of novice traders set up and mentored by legendary “Prince of the Pit” Richard Dennis.

Dennis did so to set up an old argument with fellow trader Bill Eckhardt on whether trading could be taught or not (not unlike the story in classic movie Trading Places).

The experience was succesful in proving Dennis right (trading could be taught), with his turtle traders making him $100 million.


The Turtles were nicknamed as such because of an analogy with how Richard Dennis expected to “grow” traders in the same way Singapore farms grow turtles. Dennis taught his students a mechanical Trend Following system and let them trade with his own capital. After being kept secret for more than a decade, the rules were revealed and floated on the internet for a while. Two enjoyable books have now been published on the topic (Complete Turtle Trader – featuring the actual turtle rules and The Way of the Turtle written by Curtis Faith, a former Turtle) if you are interested in learning more about it.


The Turtle system did not contain “magical” components. It was basically a combination of 2 different breakout systems with specific rules for money management, including position sizing, pyramiding, correlation limits and cutting down position size during drawdowns (a quick “Turtle trading rules” google search should yield some results for the exact rules).


Now that the rules have been made public, it is possible to backtest them and see how they would have performed on the recent markets. Such test result can be found on the Trading Blox forum.

It basically shows that the CAGR drops from 216% (!!) from 1970 to 1986 (when Dennis and Eckhardt were developing the system, and also when the students traded the system with real money) to barely double digits (10.5%) in the last 23 years (1986 to 2009), with a completely flat period from 1996 to 2009.

As a side note check the crazy amount that compounding generates at that rate of 216%!

One could argue that Dennis & co were just lucky to trade the system during what appears to be its golden period.


During the Turtle experiment, Dennis came to the realisation that their position sizing rules were such that:

you have been trading as much as twice as big as we thought

Here is a snapshot of the memo that Dennis sent to all traders asking them to cut their position size in half.

As Dennis said:

We must be living right

Another way of saying “We have been very lucky”?…


Well, some say that the Turtle performance was a fluke – that the Turtles were actually the proverbial monkeys writing Hamlet (see the Infinite Monkey Theorem). I guess these people would be in the EMH camp (Efficient Market Hypothesis).

Some say that Trend Following is dying/dead and the Turtle system under-performance is an illustration of that. Problem is: these people seem to celebrate the demise of “simpleton” Trend Following strategy every so often (during major drawdown peiods), only for Trend Following to come back roaring again (think 2008).

Some might also say that market conditions are changing, and systems need to adapt to these changing conditions.

Although, some also say that this argument is specious, citing Bill Dunn as an example of a CTA claiming to use the same rules as when he started in the 70’s.


Instead of concluding this post quickly here – on what it does or does not means – I thought it might be more interesting to expand and spend more time on the possible interpretations above in a post of its own. Part 2 will take this discussion further.

Stay tuned, I will try to touch on whether or not Trend Following should, and can, adapt to changing market conditions