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The Complete TurtleTrader: The Legend, The Lessons, The Results

by Michael W. Covel (2007)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

The Complete TurtleTrader: The Legend, The Lessons, The Results

Author: Michael W. Covel | Categories: Trend Following, Trading Systems, Trading Psychology

Executive Summary

"The Complete TurtleTrader" by Michael W. Covel tells the extraordinary true story of Richard Dennis's famous trading experiment in which he recruited and trained a group of novice traders, known as the "Turtles," to prove that trading could be taught. Dennis, who had turned a few hundred dollars into $200 million by age 37, wagered with his partner William Eckhardt that trading skills were nurture, not nature. The experiment, conducted in 1983-1984, produced multiple millionaires and resolved one of Wall Street's most debated questions: Can great trading be learned, or must it be innate? The book reveals the trading rules Dennis taught, the results his students achieved, and the divergent paths they took after the experiment ended.

Core Thesis & Arguments

Covel's central argument mirrors Dennis's own position in the nature-versus-nurture debate: trading skill can be systematically taught. The book advances several key arguments: (1) A properly designed set of rules, combined with disciplined execution, can produce consistent profits across diverse markets; (2) Emotional discipline and risk management are more important than market prediction; (3) Trend following works because it exploits the persistent irrationality of market participants, as described by behavioral finance long before it became mainstream; (4) Traditional credentials, pedigree, and IQ scores are poor predictors of trading success; (5) The willingness to accept losses, think probabilistically, and maintain conviction through drawdowns separates winners from losers.

Chapter-by-Chapter Analysis

Chapter 1: Nurture versus Nature

Introduces the fundamental debate between Dennis (nurture) and Eckhardt (nature). Dennis recruited students through classified ads in the Wall Street Journal and Barron's, seeking a diverse group of personalities rather than Wall Street veterans. He selected candidates who demonstrated willingness to take calculated risks and think in terms of odds.

Chapter 2: Prince of the Pit

Chronicles Dennis's rise from a $100 grubstake (from his brother's pizza delivery earnings) to becoming a multimillionaire by his mid-twenties. Details his trading philosophy rooted in empiricism (David Hume, John Locke), his move from the MidAmerican Commodity Exchange floor to the CBOT, and his natural tendency to teach and share knowledge.

Chapter 3: The Turtles

Profiles the diverse group of students Dennis selected, including backgrounds ranging from accountants and musicians to game designers and the unemployed. The name "Turtles" came from Dennis's visit to a turtle-breeding farm in Singapore.

Chapter 4: The Philosophy

Explores the intellectual foundations of the Turtle system: thinking probabilistically, viewing money as a way to keep score rather than an end in itself, and maintaining emotional detachment from individual trades.

Chapter 5: The Rules

Details the specific trading rules Dennis taught, including entry and exit signals, position sizing based on volatility (the ATR/N concept), pyramiding positions, and correlation-based portfolio limits. The system was based on breakout entries with trend-following logic.

Chapter 6: In the Womb

Describes the controlled environment in which the Turtles traded, the monitoring systems Dennis used, and the early experiences of the traders as they learned to apply the rules with real money.

Chapter 7: Who Got What to Trade

Explains the portfolio allocation process, how different Turtles were assigned different markets, and the diversification principles underlying the system.

Chapter 8: Game Over

Covers the end of the formal experiment, Dennis's own trading setbacks, and the transition of the Turtles to independent careers.

Chapters 9-14: Post-Experiment Careers

Traces the divergent paths of the Turtle traders after the experiment, from Jerry Parker's Chesapeake Capital ($1 billion+ under management) to those who failed. Examines why some Turtles succeeded spectacularly while others abandoned the method or went broke.

Key Concepts & Frameworks

  • Trend Following: Trading in the direction of established price trends across all liquid markets
  • Position Sizing by Volatility (N): Normalizing risk across different markets using Average True Range
  • Breakout Entry System: Entering positions when prices exceed previous 20-day or 55-day highs/lows
  • Pyramiding: Adding to winning positions at predetermined intervals
  • Portfolio Heat: Limiting total portfolio risk through correlation-based position limits
  • Expectancy: Thinking in terms of expected value across many trades rather than individual outcomes
  • The Casino Mentality: Trading like the house, accepting that individual outcomes are random while the edge plays out over many trades

Practical Trading Applications

  • Use systematic rules to remove emotional decision-making from trading
  • Size positions based on market volatility, not fixed dollar amounts
  • Cut losses quickly with predetermined stop-losses
  • Let winners run by using trailing stops rather than profit targets
  • Diversify across uncorrelated markets to smooth equity curves
  • Accept that most trades will be losers; profitability comes from the magnitude of winners exceeding losers
  • Trade every signal without cherry-picking to capture the full distribution of outcomes

Critical Assessment

Strengths: Covel provides the most complete publicly available account of the Turtle experiment, including trading rules, performance data, and personal interviews. The book effectively demolishes the myth that successful trading requires innate genius or elite credentials. The narrative structure makes complex trading concepts accessible to a wide audience.

Weaknesses: The book occasionally veers into hagiography of Dennis and trend following generally. Covel's journalistic style sometimes prioritizes storytelling over analytical rigor. The specific Turtle rules, while revolutionary in the 1980s, have been widely disseminated and may have lost some edge due to increased competition. The book could benefit from more quantitative analysis of the Turtle system's evolution and adaptation.

Key Quotes

  • "Trading was more teachable than I ever imagined. Even though I was the only one who thought it was teachable... it was teachable beyond my wildest imagination." - Richard Dennis
  • "You're much better off going into the market on a shoestring, feeling that you can't afford to lose." - William Eckhardt
  • "I'm an empiricist, through and through. David Hume and Bertrand Russell. I'm solidly in the English tradition." - Richard Dennis
  • "If I make $5,000, then I can bet more and potentially make $25,000. And if I make $25,000, I can bet that again to get to $250,000."

Conclusion & Recommendation

"The Complete TurtleTrader" is an essential read for anyone interested in systematic trading and trend following. The Turtle experiment stands as one of the most important demonstrations that trading success can be replicated through proper training, disciplined rule-following, and sound risk management. While the specific rules may need updating for modern markets, the underlying principles of trend following, volatility-based position sizing, and emotional discipline remain as relevant as ever. The book is accessible to beginners while providing enough depth for experienced traders to extract actionable insights.