Charles-Henry Monchau

Chief Investment Officer



The Turtle Trading experiment was born of a disagreement: Richard Dennis, a renowned commodities trader, was convinced that anyone could be taught how to trade on the futures market, while William Eckhardt considered trading skills to be innate. So, the bet was on.

To settle the bet, Dennis set up an experiment in which 14 novices with no particular previous trading skills were trained over a two-week period. These apprentices, nicknamed the "Turtles", , symbolised the efficiency he wanted to replicate. He purposely selected a cross-section of society, including a teacher, a cook, an accountant and a few women, going against the prevailing norms of the Chicago floor of the 1980s. This diversity was critical to the success of the experiment.


Starting capital was then allocated to invest in over 24 financial instruments, including bonds of various maturities, commodities such as coffee, cocoa, sugar, cotton, gold, silver, crude oil, and heating oil, as well as futures contracts on the S&P 500 index and currencies such as the British pound, Swiss franc, Deutschemark, French franc, and Japanese yen. There was also a precise set of trading rules to follow.

This experiment not only ended up proving Dennis's theory but also anticipated behavioural finance principles, which would later be highlighted by Daniel Kahneman’s Nobel Prize-winning work.

Source: The original advertisement for the Turtle experiment from trendfollowing



The basics of Turtle Trading

The Turtle Trading principles are not very different from fundamental trading strategies: "Don't let emotions fluctuate with your capital," "Stay consistent," and "Focus on the process, not just the results." Beyond the simplicity of these guidelines, Dennis and Eckhardt have introduced specific trading principles to be applied, aiming for what they refer to as an optimal trade.

1. Trend following

Trend following lies at the .core of the Turtle Trading system and consists of identifying a market trend and following it to secure profits, regardless of whether it is heading upwards or downwards.

Trend followers operate on a simple but powerful rule: they enter the market when a trend is established and exit when it reverses, minimising impulsive decisions to focus strictly on price trends. This strategy acknowledges that while predictions for each trade are not always correct, adherence to this disciplined approach guarantees long-term profitability. An example of trend following involves buying a stock when its weekly close exceeds the 50-day moving average, and holding the position until the price falls below the same average. This flexible method allows traders to adjust their strategy at different time intervals, from monthly to daily charts, and to vary length of moving averages for more frequent trading.

Source: Macro-ops

2. Position Sizing

Position sizing is based on market volatility, determined by a unit called "N", which stands for the volatility measured by the Average True Range (ATR) over the last 20 days. The strategy advocates risking a modest fraction of equity (between 1 and 2%) on each transaction to manage and minimise risk effectively.

At the heart of this method is the "2% risk rule", which caps the risk on each trade at 2% of the trader's total capital. Thus, on a $100,000 account, the maximum authorised risk per transaction is limited to $2,000. By respecting this rule, a trader can withstand a series of losses (up to 100 consecutive loss-making trades) without depleting his capital, enabling him to keep his position open.3. 

3. Adjusting position size

To manage risk, the Turtles adjust the size of their positions downwards after significant losses. The rule is as follows: if an account suffers a drawdown of more than 10%, positions are adjusted as if the drawdown was 20%, exponentially reducing positions in the event of a downward trend. This means that turtles prioritise loss mitigation over loss recovery.

If an account falls by 10%, for example from $100,000 to $90,000, traders proceed as if the account only had $80,000. Therefore, instead of risking 2% of $90,000 ($1,800), a trader would risk 2% of $80,000 ($1,600). This conservative strategy serves to control losses during adverse periods and keeps traders disciplined and focused on long-term goals.

4. Pyramiding

Pyramiding is a technique used to leverage positive momentum from successful trades by incrementally increasing the positions as the market moves favourably. Once an initial position is established, additional investments are made with each favourable price increase, allocating more capital to winning trends and reducing exposure to underperformers.

Source: DailyPriceAction

5. Risk management

Turtle Trading incorporates an ATR-based stop-loss mechanism to limit potential losses to a maximum of 2% of capital per transaction. As winning positions are increased, stop-loss levels are adjusted accordingly to ensure that losses do not exceed this predefined threshold.

Stop-loss levels also vary according to the ATR. This means that in periods of low volatility, indicated by smaller candlesticks and lower ATR, stop-losses are tighter. Conversely, in high-volatility scenarios, with larger candlesticks and higher ATR, stop-losses are wider. 

6. Entry criteria 

Turtle Trading's entry criteria are based on the use of two distinct breakout systems. The S1 system is designed to enter trades based on a 20-day breakout, responding to short-term market movements. The S2 system is based on a 50-day breakout, targeting longer-term trends, and offering a broader perspective on market direction.

This two-system approach allows the Turtles to align their trades with primary and secondary market trends, capitalising on momentum. Unlike some strategies that wait until the close of a trading day to confirm a position, Turtles initiate trades at the breakpoint, aiming for timeliness in capturing trend movements.

The system uses Donchian channels to define trading levels, marking the highest and lowest prices over a number of days to establish potential entry points. A break above the high threshold suggests a favourable long position, while a break below indicates a short position.


7. Exit criteria 

Exit criteria are defined by shorter timeframes. S1 exits are made on a 10-day breakout, contrary to the 20-day entry rule, while the S2 system uses a 20-day breakout for exits, consistent with the 50-day entry. The basic idea is to follow a trend until it is no longer valid. The core idea is to stay within the trend until it no longer holds.

Outcome of the Turtle experiment

The Turtle Trading experiment, proved its effectiveness when the novices they mentored achieved an average annual rate of return of 80%, making over $175 million in combined profits in just five years, proving that they could indeed learn to trade successfully.

Source: Pedma 

However, the strategy is not without its challenges. Drawdowns, or declines in account value, are major risks, because of the high number of false breaks characteristic of trend following. Practitioners anticipate a success rate of 40-50% at most.

More recent valuations show that Turtle Trading's performance has been mitigated, with studies indicating a decline in performance since 2007 compared to earlier periods. This might be attributable, at least partly, to the quantitative easing post-2008.

As for Dennis, he can be seen as the other side of the coin: between 1987 and 1988, after five years of turtle experiment, he lost over half his fortune. Whether Dennis strictly followed his own rules remains an open question. Following this setback, Dennis ceased his trading activities. Today, he is better known for initiating the Turtle Trading experiment than for his trading exploits.




Despite the mixed outcomes and the eventual retirement of Dennis, the Turtle Trading strategy, characterised by buying on breakouts and exiting when trends begin to consolidate or reverse system, remains an important and widely studied method. It requires adherence to the principle of trading both uptrends and downtrends with an appropriate time frame for entry and a shorter one for exit to capture gains efficiently.

The Turtle Trading's experiment has proven that, with the right training and mindset, anyone can earn profits on the financial markets. The fundamental principles - trade with an edge, manage risk, stay consistent and keep it simple - remain timeless pillars within the trading community.




This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. This document is intended for informational purposes only and should not be construed as an offer, solicitation or recommendation for the subscription, purchase, sale or safekeeping of any security or financial instrument or for the engagement in any other transaction, as the provision of any investment advice or service, or as a contractual document. Nothing in this document constitutes an investment, legal, tax or accounting advice or a representation that any investment or strategy is suitable or appropriate for an investor's particular and individual circumstances, nor does it constitute a personalized investment advice for any investor. This document reflects the information, opinions and comments of Bank Syz Ltd. as of the date of its publication, which are subject to change without notice. The opinions and comments of the authors in this document reflect their current views and may not coincide with those of other Syz Group entities or third parties, which may have reached different conclusions. The market valuations, terms and calculations contained herein are estimates only. The information provided comes from sources deemed reliable, but Bank Syz Ltd. does not guarantee its completeness, accuracy, reliability and actuality. Past performance gives no indication of nor guarantees current or future results. Bank Syz Ltd. accepts no liability for any loss arising from the use of this document.

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