Trading Can be Taught, Really ???

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“Can Trading be taught?” This was the question which was being debated by two legendry traders and friends Richard Dennis and William Eckhardt. This debate gave birth to one of the most fascinating experiments on the Wall Street. In the year 1983 legendary commodity traders Richard Dennis and William Eckhardt conducted an extraordinary real life experimentutut to prove the hypothesis that trading can be taught. Dennis decided to find a group of people to whom he would teach his rules and then have them trade with real money.

In the late fall of 1983 Dennis placed an ad in The Wall Street Journal and in response to the advertisement more than thousand applied and finally out of these thousand only 14 traders made it. These 14 traders were from diverse background. The group was very eclectic it included people like  a Czechoslovakian-born blackjack master, a Dungeons and Dragons game designer, an evangelical accountant, a Harvard MBA, a U.S. Air Force pilot, a former pianist and a women who was working as a trade clerk  at the Chicago Board.
Dennis called these 14 traders “turtles”. As he compared this idea of growing traders with the turtle farms he had visited in Singapore where turtles are grown in a farm quickly and efficiently.

The training lasted for two weeks. This training was based on philosophy and rules that covered every aspect of trading leaving no decisions to the subjective whims and fancies of the trader. The training involved seven steps:

  1. Define the question.
  2. Gather information and resources.
  3. Form hypothesis.
  4. Perform experiment and collecting data.
  5. Analyze data.
  6. Interpret data and draw conclusions that serve as a starting point for new hypotheses.
  7. Publish results.

Based on these steps following rules were taught to the turtles.

  • Look at prices rather than relying on media (television or newspaper commentators)  to make your trading decisions.
  • Have flexible parameters for buy and sell signals. Test parameters for different markets to find out what works best.
  • Plan your exit as you plan your entry. Know when you will take profits and when you will cut losses.
  • Use the average true range to calculate volatility and use this to vary your position size. Take larger positions in less volatile markets and lessen your exposure to the most volatile markets.
  • Don’t ever risk more than 2% of your account on a single trade.
  • If you want to make big returns, you need to get comfortable with large drawdown.

After this two weeks of training these turtle traders went on to make an average annual compounded rate of return of 80% which amounted to more than $150 million in four years.

Conclusion This extraordinary experiment proved that trading can be taught. It’s also a great example that how following a trading system based on a specific set of proven criteria can help traders realize greater returns. The way a group of non-traders learned to trade for big profits you can also learn and earn big money on the street.

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1 Comment

  1. Gyanesh Ratna on

    Totally agree with your thought process, very well written. In my humble opinion trading is a science based on facts; but one needs to account for multiple independent variable factors. The person who can minimize his losses can make money in the market & risk management plays a big role in trading. Thanks for sharing your views.

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