I’m excited to announce the launch of our new site CryptoTurtle.com! A site devoted to illustrating the importance of a crypto trading plan through the principles and lessons learned of the original Turtle experiment. Sign up for our newsletter today to receive weekly crypto performance recaps of Richard Dennis’s famous Turtle Rules delivered directly to your inbox.
Trading in crypto is hard. Everything is amplified. The risk, the rewards, the emotions. You can wipe yourself out if you’re not careful, and people do. You don’t get bailed out by the government when you make a mistake. It’s ruthless. It’s cutthroat. It’s volatile. So, it’s shocking to me the amount of people that get involved in crypto with no real plan. Reacting to every headline they read. Letting emotions drive their decisions. They Fear Of Missing Out and over trade. Making it difficult to deal with the ups and downs of the crypto market.
Having a plan is vital to success when trading in any asset class. A good plan guides our decisions in all conditions. It removes the guess work. It’s grounded in reality, has a clear goal, time horizon, is supported by data, and serves to remove emotion from our decisions. Without a plan, you’re left in a constant state of trying to figure out what to do. Always trying to read, interpret, and predict the market. Long term, you’re more likely to fail than succeed.
Years ago, I was browsing my local bookstore and I came across Michael Covel’s book The Complete Turtle Trader and it had a profound impact on me. The book recounts a famous two-year experiment conducted by Richard Dennis, a well-known commodities trader, and his partner William Eckhardt to settle a bet between the two; That good traders could be taught and were not made.
As part of the experiment, Dennis handpicked 14 participants from a pool of over 1000 applicants. I was fascinated by the diverse histories of the people selected. As most of them were never traders before. Some of the backgrounds as described by Covel: A doorman, an actor, a Harvard grad, a former Air Force pilot, an attorney, a programmer, an accountant.
The individuals selected for the experiment were given the moniker of the Turtles by Dennis. To prove his point, Dennis would teach the Turtles his trend following system over the course of two weeks, requiring all participants to sign strict 5-year Non-Disclosure Agreement, and then finally, letting the Turtles trade accounts with his own money.
The results? A reported $175 million in 5 years.
There are several lessons we can learn from the Turtles. The first is that it doesn’t require any sort of special skillset to be successful. These were ordinary people, with diverse backgrounds, making smarter decisions.
The second is they always followed their trading rules. As part of the experiment, Dennis provided the Turtles the rules of his trading system for them to follow. All they needed to do was follow the rules. One reason the rules were so successful with the Turtles was they we’re simple. There was no guess work or ambiguity. You simply followed the rules.
This required the Turtles to learn a great deal of discipline to be successful. This was particularly difficult for the Turtles when the market was chipping away at their profits or when the market was stagnant waiting for the market to move strongly in any direction. But the message was always clear from Dennis. Always follow the rules.
The next lesson is they fiercely protected their capital. The Turtles never risked more than 2% of their total portfolio in a single trade. They always used stops to protect their capital, didn’t chase losses, and only added to winning positions.
What I loved most about the Turtle system was it could be applied to any asset or financial instrument and was incredibly simple. The beauty of the Turtle system truly is in the simplicity of the rules. You buy when the price is going up, you sell when the price is going down, and it is all tied together with volatility for risk management. The system strives to remove the emotion and the psychological aspect of trading. You just follow the rules.
As I studied the success of the Turtle experiment, it was clear to me that there was more to the success of the Turtles than just the system itself. I could see there were deeper principles at work. Turtle Principles if you would. I consider those principles to be:
- Define and test rules.
- Keep it simple.
- Always follow the rules.
- Be prudent risk managers.
- Use data to drive our decisions.
- Remove emotion from our decisions.
- Protect our capital at all costs.
- Know when to exit before you enter.
- Accept losses and move on.
- Think in terms of expected value.
- Always follow the trend.
- Be consistent and levelheaded (see: Always follow the rules.).
After gaining a deep understanding of the system and principles Dennis taught. My mind immediately went to applying the system to crypto, as I felt crypto had a lot of the properties that would perform well in a trend following system. I also thought there was a lot of value in the simplicity of the rules. Specifically, for a space like crypto where there is a lot of noise, and a tendency to make big moves in one direction or another. An asset class like this I thought would be perfect for a system like Dennis’s.
But I also began to wonder, was there a way to improve the system for crypto? I could remember reading about many of original members from the Turtle experiment going on and starting their own successful firms. Most of them using their own variations of the rules. I was curious to what were their rules were like. Was there a more optimal time frame to use? 4 hour candles? 1 hour candles? Did they have better exit criteria? I brainstormed theories as to how I might be able to improve the system without over complicating it or deviating from its core principles. I wondered what the process to developing their trading plans looked like and if it could be optimized for crypto.
And that lead to the birth of Crypto Turtle. A site devoted to applying the principles and lessons learned from the Turtle experiment to crypto trading. The goal of this site is to illustrate the importance of a trading plan through data. To focus on the process and ingredients necessary to build a successful trading plan. To inspire people to develop the disciplines necessary to be successful in the crypto trading space. To be the catalyst for people to define their own trading plans in concrete terms and follow them. To show that being a successful crypto trader is within anyone’s reach if they put in the time, effort, and focus on the right things.
We’re not here to give you financial advice. To promise you a fool proof system guaranteed for success. Rather, we’re imploring people to change, learn, and evolve. To get at the root of what makes a trader successful. To avoid the hype, tune out the noise, be more pragmatic. To put your best foot forward in becoming a better trader.
If any of this sounds of interest to you, then consider subscribing to our newsletter. Our focus will be on working on the process of building a trading plan. We’ll use the original turtle system as a starting point to measure the effectiveness and expected value, find opportunities to improve, consider it from the angle of crypto, and back test.
We’ll look into the area of building and measuring our own rules and systems, with the lessons learned and principles from the Turtle experiment to guide us. With the understanding that nothing works forever and in all situations. We must always continually adapt and learn.
If you’re interested in reading a summary of the original Turtle Rules, you can find them here: https://cryptoturtle.com/turtlerules
For a more in depth view of the rules, you can find them here: https://bigpicture.typepad.com/comments/files/turtlerules.pdf
Or consider picking up Covel’s book The Complete Turtle Trader. It’s a great read. (No affiliation with either)
Disclaimer: The data, information, methodologies, and other content set forth is made available solely for general information purposes. Trading digital assets involves significant risk and can result in the loss of your invested capital. Individuals should consult their financial advisor for matters involving trading, finances, taxation, and tax planning, and should consult their attorney for any legal matters.