What it means
In 1983, Richard Dennis and his partner William Eckhardt disagreed over whether great traders are born or made. To settle it, Dennis recruited a group of people with little or no trading experience, taught them a set of rules and gave them real money to trade.
The recruits were nicknamed the Turtles, after turtle farms Dennis had seen in Singapore, where young turtles were raised in large numbers. Several of them reportedly went on to have successful trading careers, which supported Dennis's view that the method could be taught.
The core of the approach is trend following, which means buying markets that are rising to new highs and selling those that fall to new lows, then staying in the trade until the trend ends. Entries were based on price breakouts, such as the highest price in the past 20 or 55 days, and exits on shorter opposite moves.
What made the system distinctive was its risk management. Each position was sized according to the market's volatility, measured by a figure called N, which is the average daily price range, and total risk was capped across the whole portfolio.
Trend following does not win often, so a typical system may lose on more than half of its trades and rely on a few large gains to deliver overall profit. This demands patience and discipline, because long strings of small losses are normal.
For non-traders, the Turtle story is a lesson in process. Written rules, consistent position sizing and strict loss control often matter more than clever predictions.
That is why the story is still taught in trading courses decades later.
In practice
Real-world examples.
Example
A commodity fund manager adopts a simple Turtle-style rule: buy when the price exceeds its 55-day high and exit when it falls below its 20-day low. The rule is written down and applied without exceptions. The fund keeps a log to review whether staff followed it. Any exception has to be explained in writing to the risk committee.
Example
A retail trader with a $50,000 account decides to risk no more than 1% per trade. With a one-N loss of $250 per contract, she buys 2 contracts, which makes the loss on a one-N adverse move $500. The sizing keeps any single trade from damaging the account.
Example
A risk officer at an asset manager studies the Turtle story when designing training for junior traders. She stresses that new hires should learn to follow rules and size positions first, before trying to be creative. She uses simulated trades so that mistakes cost nothing while the habits are formed.
Formula
Calculation
Unit size = (1% x account equity) / (N x dollar value per point)
A trader has an account of $500,000, so 1% is $5,000. The market's N, its average daily range, is 2.50 points, and each point is worth $100 per contract.
Dollar volatility per contract = 2.50 x 100 = $250.
Unit size = 5,000 / 250 = 20 contracts.
This means a one-N move against the position costs 20 x 250 = $5,000, which is exactly 1% of the account. Position size therefore falls when markets become more volatile and rises when they are calm.Case study
Seen in the real world.
Slowwater Capital is a fictional trading firm used for this illustrative example. The founder recruited five new graduates, gave each $200,000 of firm capital and taught them one trend-following rule set in a two-week course.
In the first year, the group lost on 60% of trades but still ended the year up 14% in total, because the winning trades were much bigger than the losers. One trainee, however, kept overriding the rules after a run of small losses and finished the year down 6%.
The founder concluded that the system worked when followed, and the biggest risk was the human tendency to deviate. The illustrative story echoes the original Turtle experiment, where discipline mattered as much as the method. Each trainee's results were reviewed monthly against a simple checklist of whether the rules had been followed, not only against profit and loss.
Watch out
Common mistakes.
- Believing the Turtles had a secret that guaranteed profits. Their results were never guaranteed, and trend following has long losing stretches.
- Copying the entry rules but ignoring the position sizing. The risk controls are what kept the system alive through bad periods.
- Abandoning the system after a few losses. It is designed to lose often and win big, so judging it over a handful of trades is misleading.
Questions
People also ask.
Who started the Turtle experiment?
Richard Dennis and William Eckhardt, in 1983, with the goal of testing whether trading could be taught.
Is Turtle trading still used?
Variations of trend following are still used by systematic funds, though many markets have become more competitive and a simple version may behave differently today.
What does N mean?
N is the Turtles' measure of volatility, based on the average true range of price, and it is used to size positions.
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