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Fighting the scams, frauds and charlatans The Original Turtle Trading Rules ORIGINALTURTLES.ORG The Original Turtle Trading Rules  2003 OrignalTurtles.org Table of Contents F OR E W ORD Volatility Adjusted Position Units 14 Examples 14 Free Rules? Are you kidding? 1 The Importance of Position Sizing 15 The Origin of the Free Rules Project 1 Units as a measure of Risk 16 The Ugly Truth about the System Sellers 2 Adjusting Trading Size 17 Rules You Won’t Follow Don’t Matter 3 The Genesis of the Project 4 I NT R ODUC T I ON The Turtle Experiment C HAP T ER 5 C HAP T ER FOUR Entries 18 Breakouts 18 Adding Units 19 Consistency 20 ONE A Complete Trading System 7 C HAP T ER The Components of a Complete System 8 Stops 21 Markets – What to buy or sell 8 Turtle Stops 21 Position Sizing – How much to buy or sell 8 Stop Placement 22 Entries – When to buy or sell Alternate Stop Strategy – The Whipsaw 23 Benefits of the Turtle System Stops 24 8 Stops – When to get out of a losing position9 FI V E Exits – When to get out of a winning position 9 C HAP T ER Tactics – How to buy or sell 9 Exits 25 Summary 9 Turtle Exits 26 These are Difficult Exits 26 C HAP T ER TWO Markets: What the Turtles Traded C HAP T ER SI X 10 THR E E C HAP T ER SE VE N Tactics 27 Entering Orders 27 Position Sizing 12 Fast Markets 28 Volatility – The Meaning of N 12 Simultaneous Entry Signals 28 Dollar Volatility Adjustment 13 Buy Strength – Sell Weakness 29 Rolling Over Expiring Contracts 29 Finally 30 C HAP T ER EI GHT Further Study 32 Trading Psychology 32 Money Management 33 Trading Research 33 Final Warning 33 Foreword ORIGINAL TURTLES f Free Rules? Are you kidding? Why are some of the Original Turtles giving away Rules for which others have charged thousands of dollars? Are these the actual Original Turtle Trading System rules? Y ou probably asked yourself the same questions: “Why would anyone give away the rules to the original Turtle Trading System? How can I be sure that these are the original Turtle Trading System rules as taught by Richard Dennis and William Eckhardt?” The answer to these questions lies in the origin of this project. The Origin of the Free Rules Project This project had its seed in various discussions among a few of the original Turtles, Richard Dennis, and others regarding the sale of the Turtle Richard Dennis and Trading System rules by a former turtle, and subsequently, on a William Eckhardt website by a non-trader. It culminated in this document, which were not consulted prior to the marketing of the Turtle discloses the Original Turtle Trading Rules in their entirety, free Trading Rules and did not of charge. benefit in any way from the sale of the Turtle Rules they developed. Why? Because many of us believed that we owed an obligation to Richard Dennis not to reveal the rules, even after our contractual 10 year secrecy pact ended in late 1993. For this reason, we did not look kindly upon the sale of those rules by a former turtle. Further, we saw the sale on the web site as crass and opportunistic intellectual property theft, an act that, while technically not illegal, was certainly not honorable. At the same time, having seen others try to follow these rules first-hand, I realized it was unlikely that their publication would result in very many people actually learning to 1 ORIGINAL TURTLES trade like the Turtles. In fact, I knew that most of those who spent thousands to learn these heretofore secret rules would end up disappointed, for three reasons: • The rules wouldn’t be clear, since the people selling them didn’t know how to trade. • Even if they were clearly presented, the buyers probably wouldn’t be able to follow the rules. • Most of the Turtles are now trading even better rules. The Ugly Truth about the System Sellers I’ve been trading and hanging around trading circles since high school. One of the sad realities of the trading industry, and the futures trading industry in particular, is that there are far more people making money selling others’ systems and “ways to make money trading,” than there are people actually making money trading. I won’t go into specifics here, but those of us who actually trade for a living know the names of many “famous traders” who are famous as “traders,” but that don’t make money as traders. They make money selling new trading systems, seminars, home study courses, etc. Most of these so called “experts” can’t trade and don’t trade the systems that they sell. Yes, this is also true of those selling the Turtle Trading Rules. Consider the major sellers: the first, a web site, TurtleTrader.com, and the second, a former turtle. Here’s what they won’t tell you: TurtleTrader.com - A web site run mainly by one guy (an admittedly talented web marketer that also has a pharmacy site and a site that sells personality tests), turtletrader.com purports to have the actual Turtle Trading Rules, and will sell them to you for $999.00. The site is filled with huge amounts of information about trading, and bills itself as the “No. 1 Source for Trend Following Worldwide.” What they don’t tell you is that the site is run by a guy who doesn’t even trade his own rules—or trade at all for that matter—and has never been a successful trader. Yet he purports to be an expert on the “Turtle Trading Rules,” and on trend following! You can get something close to the actual rules from this site, but you won’t get any expert advice from the guy who runs it. All you will get is the regurgitation of advice from other traders that is not tempered by the experience of a successful trading career. Paying for advice from this source is a lot like hiring a blind guide. In the final analysis, TurtleTrader.com is not any better than other scams and system selling hucksters he warns about. It is a site run by a guy who appears to me to be more 2 ORIGINAL TURTLES interested in taking his customers’ money than he is in their success with the system he sells; a site run by someone who misrepresents himself as an expert in trend following, yet doesn’t mention that he doesn’t trade. The money-back guarantee is almost worthless; you have to keep a log of all your trades and prove that you made them in the markets by providing your brokerage statements. If you don’t like the rules and want your money back, it seems exceedingly unlikely that you would open a trading account and then trade for a year just to get the refund. Former Turtle - This individual, a former turtle, sells tapes, books, hotlines, videos, seminars, and more, for prices ranging from $29.95 to $2,500. What the Former Turtle won’t tell you is that he never made money as a turtle; in fact he didn’t last a full year as a turtle before he was fired from the turtle program because he couldn’t trade the Turtle System Rules successfully. He lost money while most of the other traders were making a lot of money. The Former Turtle lends credence to the oft quoted maxim: “Those that can do, those that can’t teach.” I haven’t seen the seminar or read the books, but I can’t imagine how someone who couldn’t make money after having been taught directly by Richard Dennis can explain to others how to trade using the Turtle Trading Rules. Rules You Won’t Follow Don’t Matter What TurtleTrader.com and the Former Turtle don't tell you is that trading rules are only a small part of successful trading. The most important Following Rules aspects of successful trading are confidence, consistency, and As famous trader and father of the Turtles, Richard discipline. Dennis said: “I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” – from Market Wizards, by Jack D. Schwager. Rules that you can’t or won’t follow will not do you any good. The Turtles had a lot of reasons to be confident in the rules they were given. For the most part, we had the confidence to follow them even during losing periods. Those who didn’t consistently follow the rules didn’t make money and were dropped from the program. Traders who want to be successful will figure out a way to gain enough confidence in their own rules of trading to be able to apply them consistently. 3 As original Turtles, we had it easy. We were given rules by some of the world’s most successful and famous traders, Richard Dennis and his trading partner Bill Eckhardt. They taught us the rules and the reasons why we could trust those rules. Then we were placed into an open office with ten other traders who had been taught those same rules. In some respects it was easier to follow the rules than to not follow the rules. On the whole, we had the confidence and the discipline to consistently apply the rules we were given. This was the secret of our success as traders. Those who failed to follow the rules invariably failed as Turtles. Some of them decided they could make more money selling the Turtle rules than they did as Turtles. The Genesis of the Project Like many of the other Turtles, it always bothered me that some were making money off the work of Richard Dennis and Bill Eckhardt without their consent; that these secret-sellers had used the success of the Turtles to dupe others into spending thousands of dollars on products that were not what they appeared. I had often thought that a great way to deal with this problem would be to give the Turtle Trading Rules away for free. Since others had already let the cat out of the bag, and since anyone who really wanted the rules could already get them by paying, it wouldn’t violate my sense of fair play to reveal them. So that is what we have done....with a slight twist. While the rules are free, we respectfully ask that those who gain benefit from the rules and find them valuable send a donation supporting a charity in honor of Richard Dennis, Bill Eckhardt and the original Turtles. You can find a copy of the charities favored by the Turtles on the new web site: originalturtles.org. Curtis Faith, an Original Turtle 4 Introduction ORIGINAL TURTLES i The Turtle Experiment Richard Dennis wanted to find out whether great traders are born or made. T he age old question: Nature or nurture? In mid-1983, famous commodities speculator Richard Dennis was having an ongoing dispute with his long-time friend Bill Eckhardt about whether great traders were born or made. Richard believed that he could teach people to become great traders. Bill thought that genetics and aptitude were the determining factors. In order to settle the matter, Richard suggested that they recruit and train some traders, and give them actual accounts to trade to see which one of them was correct. They took out a large ad advertising positions for trading apprentices in Barron’s, the Wall Street Journal and the New York Times. The ad stated that Trading was after a brief training session, the trainees would be supplied with Teachable an account to trade. "Trading was even more teachable than I imagined," he says. "In a strange sort of way, it was almost humbling." – Richard Dennis, Wall Street Journal. Since Rich was probably the most famous trader in the world at the time, he received submissions from over 1000 applicants. Of these, he interviewed 80. This group was culled to 10, which became 13 after Rich added three people he already knew to the list. We were invited to Chicago and trained for two weeks at the end of December, 1983, and began trading small accounts at the beginning of January. After we proved ourselves, Dennis funded most of us with $500,000 to $2,000,000 accounts at the start of February. “The students were called the ‘Turtles.’ (Mr. Dennis, who says he had just returned from Asia when he started the program, explains that he described it to someone by saying, ‘We are going to grow traders just like they grow turtles in Singapore.’)” – Stanley W. Angrist, Wall Street Journal 09/05/1989 5 ORIGINAL TURTLES The Turtles became the most famous experiment in trading history because over the next four years, we earned an average annual compound rate of return of 80%. Yes, Rich proved that trading could be taught. He proved that with a simple set of rules, he could take people with little or no trading experience and make them excellent traders. Continue reading. The complete set of the rules that Richard Dennis taught his trainees follows, starting with the next chapter. 6