TURTLE TRADING IS NO SECRET

If there is a Holy Grail of trading (a colossal "if" in the minds of many), then it most likely consists less of trading systems and more of a set of processes, procedures, and precepts: Ride your winners and cut your losers short. When you are trading well, bet biggest, and when you are trading poorly, pull back or stop trading altogether. And last but not least, don't fight the trend.

While there are modifications and stylistic differences among traders as to the best way to execute this process - from scalpers who cut their winners short to top/bottom pickers who seek to ride trends from their origins (as opposed to profiting from what trend-followers refer to as "the meat in the middle") - few have fundamentally challenged these general trading concepts.

At the same time, few have embraced these general trading concepts as strongly as those who follow the Turtle trading methodology developed years ago by traders Richard Dennis and William Eckhardt. Although by now a legendary story in the annals of trading lore, the Turtle experiment is worth recalling for those who are unfamiliar with just what happened. Here, Richard Dennis explains the origins of the Turtle experiment in an interview with Jack Schwager in Schwager's excellent Market Wizards:

I have a partner who has been a friend since high school. We have had philosophical disagreements about everything you could imagine. One of these arguments was whether the skills of a successful trader could be reduced to a set of rules - that was my point of view - or whether there was something ineffable, mystical, subjective, or intuitive that made someone a good trader.

The resolution of this argument between Dennis and Eckhardt was the famous Turtle trading experiment in which 23 nontraders spent less than a month in training before being turned loose to trade based on the principles Dennis and Eckhardt prescribed. The results, according to Dennis, were average returns of 100% per year.

Too good to be true? Perhaps. But thanks to the efforts of subsequent generations of "Turtle traders," those who have been interested in, tantalized by, or just plain curious about how well the Turtle trading method works can find out for themselves.

SOME TURTLES ARE MORE EQUAL THAN OTHERS

All great successes beget both successors and imitators, and the Turtle trading methodology is no exception. Indeed, there are probably more websites and individuals trading off the Turtle trading reputation than any other single trading methodology. Fortunately, in TurtleTrader.com, aspiring traders have access to the real McCoy: the complete Turtle trading method as originally taught to Dennis and Eckhardt's first group of 23 aspiring traders. Not only does this website offer the Turtle trading course, but it also goes out of its way to educate visitors about the reason why trend-following - one of the mainstays of the Turtle trading method - is so successful, producing what they call "big picture, huge gains."

The educational sections of the website are valuable to anyone who trades - from beginners to veterans, and from stocks to commodities to Leaps? (long-term options). Nowhere else does a website take the time to explain what trend-following is and why it works - including examples of real-life, trend-following traders such as John W. Henry, whose results correlate strongly with the Turtle trading approach. More than a set of simple entry and exit rules, TurtleTrader.com also provides a great deal of information on the critical aspects of money management - from position sizing to handling profits and losses. Some have gone so far as to suggest that the success of the Turtle trading method is largely based on its unique money-management algorithms - perhaps even more than its strategies for getting into and out of markets. As such, the website features a section specifically devoted to the topic of money management.

While not giving away any secrets, TurtleTrader.com provides numerous articles on the statistical discoveries of real-life traders (and Bell Labs scientists) that support aggressive commitment to not just sound but strategic money management - a hallmark of Turtle trading.

Other sections include testimonials from trading houses like Galt Capital and Mulvaney Capital, as well as brief interviews with successful Turtle traders and clients like Tom Arnold of Plimsoll Capital and John Goodman of Pagnell Capital. Each of these profiles underscores the notion that "Turtle trading is brutal reality," as the website boasts. An even more entertaining testimonial is provided by TurtleTrader.com's section on, well, companies and institutions that (often unwittingly) found themselves on the opposite side of the Turtle trader - which means on the wrong side of the trend. If it is illuminating to read how a trader like Bill Dunn found great success trading with the trend, then it is equally fascinating to read how a Barings Bank or an Enron or a Metallgesellschaft found great failure in trading against it.

HYPE, HOPE, AND SECRETS

The bear market in stocks that began in 2000 provides an interesting context for all traders, and trend-followers are no exception. For all the methodologies that found such great success in the bull market, trend-following strategies are among the few that have been equally effective in the bear market. It is difficult to think of many other websites that sponsor a specific trading methodology and are as open about their methods, results, and returns as TurtleTrader.com. For example, the Market Proof section on the website provides data on trend-following gains in 2002, recent big Turtle trading wins, and examples of 10-year returns for various traders using either the Turtle trading approach or similar, correlated methods.

An entertaining aspect of TurtleTrader.com is the way it discusses and comments on the hype that surrounds trading and the world of Wall Street. Whether lambasting those who have pooh-poohed trend-following or pointing out the fallacies of traders for whom long-term luck has become a substitute for a winning market methodology, TurtleTrader.com serves a quasi-journalistic function in the world of contrarian financial commentary (I know, I know: How can trend-following ever be really contrarian?). Buy and hold, breakout chasing, the talking heads of CNBC ... all these baubles of the bull market just ended come in for regular skewering by the clear-eyed, take-no-prisoners mentality of TurtleTrader.com.

So what do you get for your money? The TurtleTrader.com website is free and includes an e-mail newsletter that will alert its subscribers to changes on the site, additions to the Turtle trader course, and discussions and commentaries on the world of trading. The Turtle trader course itself is $999 plus shipping - the same price as it was in 1996, when the course was first offered. The course includes a 200-page instruction text that covers all aspects of the Turtle Trading System, money management, an explanation of Richard Donchian's trading system (which supports the Turtle trading methodology), as well as information about client support, data on relevant hedge fund performance, offshore banking opportunities, and a guide to account management. In addition, the course provides an audio CD-ROM companion to the instruction text, and a data CD with historical volatility information for stocks and commodities. There is also a relatively new offering that consists of the same basic Turtle Trading System course, plus a module dealing with trading Leaps. This course is available for $1,699 plus shipping.

While TurtleTrader.com is obviously devoted to the Turtle trading method, what makes the method work is not the genius of the website developers, nor the genius of Richard Dennis or other traders identified with Turtle trading. In some ways, the secrecy to which many original Turtles were sworn has confused the issue of Turtle trading, making the methodology seem more clandestine and complex than it really is, while providing an unfortunate platform for less scrupulous promoters to offer the "secret" of Turtle trading to aspiring, yet unsuspecting, traders.

As one of the administrators of TurtleTrader.com suggested in e-mail, all Turtle trading amounts to, in the end, is trend-following. Indeed, there were successful trend-followers long before Richard Dennis and William Eckhardt's Turtle trading experiment, according to that administrator:

To some degree, we see the question as a continuation of the secrecy hype first revealed in Schwager's books. Great books, indeed, but the secrecy part of Turtles and trend following was misleadingÉ Given that so many other trend-followers were kicking butt at the same time of the Turtles' creation É

Turtle trend-following is not a secret. It simply takes proper teaching.