Turtle Trading: Richard Dennis's Strategy and the Turtle Traders

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Turtle trading is the trend-following system Richard Dennis taught to a group of mostly inexperienced recruits in the early 1980s. He wanted to settle a bet with his partner, William Eckhardt, over whether trading could be taught. The strategy is mechanical: buy futures that break out to new highs, sell short those that break to new lows, size every position by the market’s volatility, and exit by fixed rules rather than judgment. The two classes of Turtle traders Dennis trained reportedly earned more than $175 million over five years. The system’s weakness is equally well documented: frequent small losses and deep drawdowns.

The Turtle Trading Experiment

By the early 1980s, Richard Dennis was one of the best-known commodity traders in Chicago. He had reportedly turned a starting stake of under $5,000 into more than $100 million. He and Eckhardt often debated the source of that success. Dennis believed his approach was a set of rules anyone could learn. Eckhardt believed Dennis had an instinct that could not be passed on.

The experiment was Dennis’s way of ending the argument. He would recruit people, teach them his rules over a two-week course, and then give them his own money to trade. He called the students “turtles” after visiting turtle farms in Singapore. He reasoned that he could grow traders as quickly and efficiently as those farms raised turtles.

The first class began trading in 1983, and a second class followed in 1984. The program ran until 1988.

How the Turtle Traders Were Selected

Dennis advertised in The Wall Street Journal, and thousands of people applied for the chance to learn from him. The first program accepted only 14 traders. The exact selection criteria were never fully disclosed. The process did include a written test with true-or-false questions, such as:

1. The big money in trading is made when one can get long at lows after a big downtrend.
2. It is not helpful to watch every quote in the markets one trades.
3. Others’ opinions of the market are good to follow.
4. If one has $10,000 to risk, one ought to risk $2,500 on every trade.
5. On initiation, one should know precisely where to liquidate if a loss occurs.

Under the Turtle method, statements 1 and 3 are false, and 2, 4 and 5 are true. Statement 4 needs context. “Risk” there means the total capital set aside for trading, not the loss accepted on a single position. The answers show what Dennis was looking for: people who would not try to pick bottoms, who would ignore commentary, and who would decide on an exit before entering.

The Turtle Trading Rules

The core idea is that “the trend is your friend”: a Turtle bought a futures contract when it broke above its recent trading range and sold short when it broke below. Dennis kept the exact parameters private for years. A former Turtle later published a version of the original rules, and Michael Covel’s The Complete TurtleTrader (2007) and Curtis Faith’s Way of the Turtle (2007), written by a former Turtle, described them in detail. The framework below follows those accounts.

Markets

The Turtles traded liquid futures markets: interest-rate futures such as Treasury bonds, major currencies, metals such as gold and silver, energy contracts such as crude oil, and agricultural commodities. Trading across many unrelated markets raised the chance of catching whichever ones were trending.

Entries: two breakout systems

• System 1: enter on a 20-day breakout, meaning a price above the highest high or below the lowest low of the previous 20 days. A filter skipped the signal if the previous System 1 breakout in that market would have been a winning trade.
• System 2: enter on a 55-day breakout, with no filter. This acted as a failsafe, so a big trend that System 1 skipped would still be caught.

Entries were taken when price traded through the level during the day, not on the next day’s close. They ignored chart patterns and support and resistance judgment and acted only on whether the range had been broken.

Measuring volatility: N

The Turtles called volatility N. N is a 20-day exponential moving average of the true range. True range is the largest of three values: today’s high minus today’s low, today’s high minus yesterday’s close, and yesterday’s close minus today’s low. N is expressed in price points. To convert it to money, multiply by the contract’s dollars per point:

Dollar volatility = N × dollars per point

Position sizing: units

Positions were built in units. One unit was sized so that a one-N move equaled 1% of account equity:

Unit (contracts) = (1% of account) ÷ (N × dollars per point)

The result was rounded down. Because N differs by market, a calm market received more contracts than a volatile one, and each unit carried roughly the same dollar risk. This is the “take larger positions in less volatile markets” rule from the published lessons.

Stops

The initial stop was set 2N from the entry price. Since one unit equals 1% of equity per N, a stop at 2N caps the loss on a single unit at about 2% of the account. That is where the familiar “never risk more than 2% on a trade” rule comes from.

Pyramiding and limits

The Turtles added a unit each time price moved ½ N in their favor, up to four units per market. When a unit was added, the stops on all earlier units moved up to 2N from the most recent entry. Portfolio limits kept the total in check: no more than 6 units in closely correlated markets, 10 in loosely correlated markets, and 12 in one direction overall.

Exits

• System 1 trades exited on a 10-day breakout against the position, for example a long closed at a 10-day low.
• System 2 trades exited on a 20-day opposite breakout.

There was no profit target. The exit lookback is deliberately shorter than the entry lookback: entries demand strong evidence of a trend, while exits react sooner once it fades, which lets winners run while still taking profits.

Drawdown adjustment

When equity fell 10% from its starting level, the Turtles cut the notional account size used for sizing by 20%. Unit sizes shrank during losing streaks and recovered as the account did.

A Worked Example

The numbers below are hypothetical.

• Account: $100,000, so 1% is $1,000.
• Contract: $1,000 per point, with N at 0.50 points. Dollar volatility is 0.50 × $1,000 = $500 per contract.
• Unit size: $1,000 ÷ $500 = 2 contracts.

The market breaks above its 55-day high at 80.00 and triggers a System 2 long. The Turtle buys 2 contracts with a stop at 80.00 − (2 × 0.50) = 79.00. If the stop is hit, the loss is 1 point × $1,000 × 2 contracts = $2,000, which is 2% of the account. This assumes the stop fills at its level. A gap through the stop would make the loss larger.

If the price instead rises to 80.25 (½ N), a second unit is added and every stop moves to 79.25. Further units follow at 80.50 and 80.75. The position then holds 8 contracts with a common stop at 79.75. From there it stays open until price trades below its 20-day low.

Results and the Cost of Trend Following

The reported $175 million result settled the bet in Dennis’s favor, because people with little or no trading background had followed written rules to large profits. Not every Turtle did equally well, and the spread of outcomes among people trading the same rules showed how much execution and discipline mattered.

The same rules produce painful stretches. Most breakouts fail. A system that buys every one of them takes many small losses while it waits for a sustained trend. A win rate of 40% to 50% means long losing streaks are normal, and the published Turtle lessons say traders seeking large returns must accept large drawdowns. Dennis himself had heavy losses in 1987 and 1988, and the program ended around then.

Two further lessons apply beyond the original parameters. Trade both directions, because markets trend down as well as up. Test any change to the parameters before trading it with real money.

Does Turtle Trading Still Work?

Breakout systems profit in years with strong, extended trends and lose in choppy, range-bound years. The original rules were also public by the 2000s, so the exact 20- and 55-day levels are no secret edge. The underlying principles survive in modern trend-following funds, usually with longer lookbacks, more markets and other refinements.

The bigger obstacle for most individuals is behavioral. Few traders can keep taking signals through a string of losses, and the system’s results depend on not skipping the one trade that catches a big trend. Running the rules on paper first, for example in a stock market simulator, shows how a losing streak feels.

The method is also slower than intraday styles. Holding periods run from weeks to months, which suits few traders looking for the pace of day trading or scalping.

FAQs

The Bottom Line

Turtle trading matters most to traders drawn to mechanical trend following who can hold positions for weeks or months. The rules are public, so their value lies in disciplined execution: sizing by volatility, setting exits before entry, and taking every signal through long losing streaks. Anyone considering the method should test parameter changes before using real money and trade it on paper first to see how a string of small losses feels.