How 23 novices became overnight millionaires

What’s the similarity between a housewife, a waiter and an office worker?

The answer: They can all become profitable traders.

The world of finance is often associated with high-powered individuals making split-second decisions.

The story that I’m about to share challenges this notion, showcasing the simple, yet powerful strengths of systematic trend following.

Nature vs nurture: A bold experiment

In the 1980s, Richard Dennis, a renowned trader, embarked on an experiment to determine if trading success was innate or could be learned. He believed that successful trading could be taught.

To settle a debate on that point with William Eckhardt, a friend and fellow trader, Dennis recruited and trained 21 men and 2 women into his team. He trained this group for only two weeks, to utilize a simple trend following system, trading a range of commodities, currencies, and bond markets.

The strategy: Capturing the trend

The core of the Turtle Traders' strategy was trend following, a systematic approach that seeks to capitalize on price movements in a particular direction.

They bought when prices increased above their recent range, and sold when they fell below their recent range.

They were taught to cut position size during losing periods and let their profits run. This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves.

This approach thrives on the principle that trends, once established, tend to persist. The Turtles weren’t fortune tellers; they aimed to capture a portion of a strong move, not predict its exact direction or duration.

As part of their trading toolkit, the Turtle traders utilized a trailing stop method to maximize their upside potential and to minimize their downside risk in ranging markets.

You can learn more about trailing stops here.

These individuals went on to achieve remarkable success, some even becoming fund managers and millionaires.

Why does trend following work?

1. Market volatility

The reality is that markets don’t move in a straight line. They trend. Trend following exploits market volatility and its directional movements to generate profits.

2. Psychological biases

Investors often exhibit herd mentality, buying high and selling low. Trend following capitalizes on these emotional tendencies by entering trends as they develop and exiting when they reverse.

3. Systematic discipline

Systematic rules remove emotions from the decision-making process, leading to more disciplined trading behaviour. A consistent approach leveraging a sound strategy helps to generate positive expectancy in the long run.

The legacy of the Turtles

The Turtle traders' story serves as a testament to the effectiveness of a well-defined systematic approach in the financial markets.

Trend following, when implemented with discipline and proper risk management, can be a powerful tool for both novice and experienced investors.

If the Turtles can achieve that, so can you!

That’s it for today!

Got questions? Feel free to drop me a note. I respond to every email.

I’ll see you soon!