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Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders
“We're going to raise traders just like they raise turtles in Singapore.”
So trading guru Richard Dennis reportedly said to his long-time friend William Eckhardt nearly 25 years ago. What started as a bet about whether great traders were born or made became a legendary trading experiment that, until now, has never been told in its entirety.
Way of the Turtle reveals, for the first time, the reasons for the success of the secretive trading system used by the group known as the “Turtles.” Top-earning Turtle Curtis Faith lays bare the entire experiment, explaining how it was possible for Dennis and Eckhardt to recruit 23 ordinary people from all walks of life and train them to be extraordinary traders in just two weeks.
Only nineteen years old at the time-the youngest Turtle by far-Faith traded the largest account, making more than $30 million in just over four years. He takes you behind the scenes of the Turtle selection process and behind closed doors where the Turtles learned the lucrative trading strategies that enabled them to earn an average return of over 80 percent per year and profits of more than $100 million. You'll discover
How the Turtles made money-the principles that guided their trading and the step-by-step methods they followed Why, even though they used the same approach, some Turtles were more successful than others How to look beyond the rules as the Turtles implemented them to find core strategies that work for any tradable market How to apply the Turtle Way to your own trades-and in your own life Ways to diversify your trading and limit your exposure to riskOffering his unique perspective on the experience, Faith explains why the Turtle Way works in modern markets, and shares hard-earned wisdom on taking risks, choosing your own path, and learning from your mistakes.
312 pages, Kindle Edition
First published March 9, 2007
344 people are currently reading
3026 people want to read
About the author
Curtis Faith
18 books25 followersCurtis Faith is best known as a member of the elite Chicago trading group, the Turtles. The group started as a bet between its founders: Were traders born or raised? In his early 20s, Curtis earned more money than makes good sense as a Turtle and he wrote a bestselling book, Way of the Turtle, detailing these adventures.
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Displaying 1 - 30 of 114 reviews
September 26, 2009
While I fully acknowledge that the momentum space is obscenely crowded these days, and this book (as well as Market Wizards Interviews with Top Traders and some other notables) runs the risk of giving the impression that any 21 year old with a laptop should be running his own hedge fund, the reality is that this is the best book I have ever read on the topic of trend following. Not only does it scratch the itch of finally stating precisely what those damn "turtles" were up to, it actually contains excellent discussions of the psychology of trading, how to set up and run back-tests, particularly how to avoid some of the more insidious biases that infect back-tests all too often, and other topics of interest. This was a much better book than I anticipated it being, which probably gets it a star it doesn't otherwise deserve.
July 26, 2020
Curtis M. Faith was one of the 'turtles' selected by Richard Dennis to learn how to trade. He claims to have the best returns among all the turtles. That may be correct for a year or two. He was the favorite student of Richard Dennis and so he got to trade a bigger account than the other turtles and thus earned a bigger bonus than the others. What happened to him after the turtle program was terminated?
He has been drifting here and there. He has not been able to trade successfully, though many other turtles set-up their own shop and applied what they learnt from Dennis and his friend William Eckhardt. His firm was investigated by SEC and he was arrested for some other crimes after a few years of publication of this book.
This book gives an inner view of the turtles program and tells about some of the basics of trading. Yes, his views are a bit biased but there is good introductory information for someone who is starting to trade.
This was a turtle who lost his way. When the discipline of trading under Richard Dennis was removed, he did not know how to handle himself. He was the youngest turtle in the program and it is quite evident that he was not able to handle his early success.
He has been drifting here and there. He has not been able to trade successfully, though many other turtles set-up their own shop and applied what they learnt from Dennis and his friend William Eckhardt. His firm was investigated by SEC and he was arrested for some other crimes after a few years of publication of this book.
This book gives an inner view of the turtles program and tells about some of the basics of trading. Yes, his views are a bit biased but there is good introductory information for someone who is starting to trade.
This was a turtle who lost his way. When the discipline of trading under Richard Dennis was removed, he did not know how to handle himself. He was the youngest turtle in the program and it is quite evident that he was not able to handle his early success.
May 31, 2010
Mildly interesting when read as an autobiography of one of the "turtle" traders. But as a "how-to" guide for making money in today's markets: complete hocum.
June 2, 2008
The book is marketed as the story of the journey of a group of young people who were selected by two wealthy guys to become traders. The problem with this: this book is more of a how-to trade, how-to evaluate your systems, along with general advice about attitudes that should be taken towards trading. This is fine, and the book does a good job doing what it does, but it is not -- NOT -- the thrilling story of a group of young traders thrown into the pressure cooker of trading and their hijinks and meltdowns. Still, a solid trading book that helps you create a system if you don't already have one.
June 17, 2017
Don't expect any magic secret from this one about the Turtles, except for one. Follow the rules and do not deviant from them. It is a story about trend following being taught to a small group and their trading afterward. It is more of a head game than a trading story. Good stuff contained within the pages for trading, not so much what or the set-up's to trade, but how to keep your head in the trade. Worthwhile read for that alone. As to the life of the author, that is a different story as to why he went awry from a career in trading. He said why, but the answer leaves much to the imagination.
November 13, 2011
It is a good book that is meant to humble anyone who can "beat the market".
September 16, 2022
Pradžią, daugiau apie psichologinius aspektus, skaičiau gana lengvai. Kai jau priėjau skaičiavimo ir formulių dalį, buvo kur kas sunkiau. Galiausiai perskaičiau visą knygą. Iš jos supratau, kad toks kelias ne man, bent jau ne šiuo gyvenimo etapu.
January 14, 2020
This book reads like a memoir, thus, a more appropriate title should be The Autobiography of a Trained Trader. The first few chapters I find it particularly useful for beginners. The author explained the stages of the getting into the market just like when he first started without knowing anything.
The author said repeatedly that having an edge is key to their success. I mean isn't common sense that any market player needs to have an edge in order to stay profitable and stay in the game? But thats exactly what most lack - risk, money management and discipline.
Even though he disclosed the original "Turtle Trading Rules" in the bonus chapter, personally, I am not a big fan of the technical aspect of this book. One needs to develop his/her own trading systems and hold a reasonable amount of scepticism of tactics from others. Plus, you never truly know what kind of strictly confidential information that has not been mentioned in the book. But still, I find the psychology aspect of this book relevant. And it is without a shadow of a doubt that technical rules and systems "only account for less than 20%" in order to become a successful trader. Whats going on in one's mind when trading is their biggest enemy. I think this book further reinforced that belief to me - that confidence in the plan, consistency to follow the plan and discipline to execute the plan are key in this business. "Keep it simple." A better version should be KISS - keep it simple, stupid.
Quotes:
"Winning traders make money by exploiting the consistently irrational behaviour patterns of the other traders.
Good traders don't try to predict what the market will do; instead they look at the indications of what the market is doing.
Failure is a necessary prerequisite to success and learning. Learning requires failure; you won't learn if you are not willing to make mistakes and fail."
Trading is a way of life. Trading is simple but not easy. Trading is a matter of nature, not nurture is proven not 100% true. Perhaps 50/50.
The author said repeatedly that having an edge is key to their success. I mean isn't common sense that any market player needs to have an edge in order to stay profitable and stay in the game? But thats exactly what most lack - risk, money management and discipline.
Even though he disclosed the original "Turtle Trading Rules" in the bonus chapter, personally, I am not a big fan of the technical aspect of this book. One needs to develop his/her own trading systems and hold a reasonable amount of scepticism of tactics from others. Plus, you never truly know what kind of strictly confidential information that has not been mentioned in the book. But still, I find the psychology aspect of this book relevant. And it is without a shadow of a doubt that technical rules and systems "only account for less than 20%" in order to become a successful trader. Whats going on in one's mind when trading is their biggest enemy. I think this book further reinforced that belief to me - that confidence in the plan, consistency to follow the plan and discipline to execute the plan are key in this business. "Keep it simple." A better version should be KISS - keep it simple, stupid.
Quotes:
"Winning traders make money by exploiting the consistently irrational behaviour patterns of the other traders.
Good traders don't try to predict what the market will do; instead they look at the indications of what the market is doing.
Failure is a necessary prerequisite to success and learning. Learning requires failure; you won't learn if you are not willing to make mistakes and fail."
Trading is a way of life. Trading is simple but not easy. Trading is a matter of nature, not nurture is proven not 100% true. Perhaps 50/50.
March 20, 2008
This book offers insights of a legendarily successful trader to people who is considering putting serious efforts into investing. It starts with some story telling resembles biography of the author, which is actually entertaining in some sections. The book becomes more and more technical as it progresses. It could turn dry in many chapters of trading analysis if you're not looking for the technical aspect of it.
Many thought that the book will disclose secret of successful trading, but it's actually just some very simple principles that you can find in the first couple chapters. However, the secret does involve many aspect of the technical analysis, which is what the rest of the book is about.
Many thought that the book will disclose secret of successful trading, but it's actually just some very simple principles that you can find in the first couple chapters. However, the secret does involve many aspect of the technical analysis, which is what the rest of the book is about.
August 2, 2011
I was expecting more about the specific training the turtles received. I was somewhat disappointed at the material included on that subject, but the book was still a worthwhile read.
I thought the chapter on risk and money management was particularly good, as well as the chapter that detailed the perils of over-fitting your strategies to the bactesting data.
I'm not sure you'll be able to "trade like a turtle" after reading the book, but it will give traders quite a few good ideas to consider.
I thought the chapter on risk and money management was particularly good, as well as the chapter that detailed the perils of over-fitting your strategies to the bactesting data.
I'm not sure you'll be able to "trade like a turtle" after reading the book, but it will give traders quite a few good ideas to consider.
August 26, 2008
The recap of the Turtles is interestingly 3-star. But what stands out is the author's explanation of the different roles (investors, traders, arbitragers, etc) that play out in the market and his chapter on volatility-based risk adjustment units used in position sizing.
March 7, 2021
If you expect to find the "holly grail" of trading, this book is not for you.
If you are searching for common patterns between the winners in this game, you can find a few here.
I particularly liked the psychology part of the book. Here are some quotes:
Scientists call distortions in the way people perceive reality cognitive biases. Here are some of the cognitive biases that affect trading:
• Loss aversion: The tendency for people to have a strong preference for avoiding losses over acquiring gains
• Sunk costs effect: The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future
• Disposition effect: The tendency for people to lock in gains and ride losses
• Outcome bias: The tendency to judge a decision by its outcome rather than by the quality of the decision at the time it was made
• Recency bias: The tendency to weigh recent data or experience more than earlier data or experience
• Anchoring: The tendency to rely too heavily, or anchor, on readily available information
• Bandwagon effect: The tendency to believe things because many other people believe them
• Belief in the law of small numbers: The tendency to draw unjustified conclusions from too little information
The Turtle Mind
• Think in terms of the long run when trading.
• Avoid outcome bias.
• Believe in the effects of trading with positive expectation.
The lessons of the Turtle class can be summed up in these four points:
1. Trade with an Edge: Find a trading strategy that will produce positive returns over the long run because it has a positive expectation.
2. Manage Risk: Control risk so that you can continue to trade or you may not be around to see the benefits of a positive expectation system.
3. Be Consistent: Execute your plan consistently to achieve the positive expectation of your system.
4. Keep It Simple: The core of our approach was simple: catch every trend. Two or three trades might account for all your profits, so don't miss a trend or you might kill your whole year. This is simple and easy to understand, not easy to do.
Dos and Don'ts for Thinking Like a Turtle
1. Trade in the present: Do not dwell on the past or try to predict the future. The former is counterproductive, and the latter is impossible.
2. Think in terms of probabilities, not prediction: Instead of trying to be right by predicting the market, focus on methods in which the probabilities are in your favor for a successful outcome over the long run.
3. Take responsibility for your own trades: Don't blame your mistakes and failures on others, the markets, your broker, and so forth. Take responsibility for your mistakes and learn from them.
To understand why this is important, let's dig further into the components that make up the edge for a system. System edges come from three components:
• Portfolio selection: The algorithms that select which markets are valid for trading on any specific day
• Entry signals: The algorithms that determine when to buy or sell to enter a trade
• Exit signals: The algorithms that determine when to buy or sell to exit a trade
Edges are found in the places that are the battlegrounds between buyers and sellers. Your task as a trader is to find those places and wait to see who wins and who loses.
Trading edges exist because of divergences in market perceptions and realities that result from cognitive biases. They exist because economists are wrong in their belief that market players are rational. Market players are not rational. Chapter 2 discussed how cognitive biases provide trading opportunities in a theoretical sense. This chapter will discuss that notion in further detail by using actual price data.
Support and Resistance
The concept of support and resistance is fundamental to almost all types of trading. Support and resistance is simply the tendency for prices not to exceed previous price levels. One can understand this concept most easily by examining its presence on a price chart.
Here is what I believe accounts for a trader's lack of success in trading commodities:
• No plan: Many traders base their trades on hunches, rumor, guesses, and the belief that they know something about the future direction of prices.
• Too much risk: Many otherwise excellent traders have been ruined because they incurred too much risk. I'm not talking about 50 percent or 100 percent more risk than is prudent. I have seen traders who trade at a level that is 5 or 10 times more than I consider prudent even for aggressive trading.
• Unrealistic expectations: Many new traders trade with too much risk because they have unrealistic expectations about how much they can earn and what sorts of returns they can achieve. This is often also the reason new traders believe they can start trading on the basis of fundamental data; they believe they are smart enough to 'beat' the market with little or no training and very little information.
The Myth of the Expert
The 'don't optimize' counsel is an effect of what my friends and I like to call the myth of the expert. Unfortunately, in most fields the number of people who really understand what's going on is very limited. For every true expert, there are scores of pseudo-experts who are able to perform in the field, have assembled loads of knowledge, and in the eyes of those who are not experts are indistinguishable from the true experts. These pseudo-experts can function but do not really understand the area in which they claim expertise.
True experts do not have rigid rules; they understand what's going on, and so they do not need rigid rules.
Pseudo-experts, however, don't understand, and so they tend to look at what the experts are doing and copy it. They know what to do but not why it should be done. Therefore, they listen to the true experts and create rigid rules where none were intended.
One sure sign of a pseudo-expert is writing that is unclear and difficult to follow. Unclear writing comes from unclear thinking. A true expert will be able to explain complicated ideas in ways that are clear and easy to understand.
Another common characteristic of pseudo-experts is that they know how to apply complex processes and techniques and have been well trained but do not understand the limits of those techniques.
In trading, a good example would be someone who can perform complex statistical analyses of trades, runs a simulation that generates 1,000 trades, and then assumes that she can draw conclusions from those trades without regard for the fact that they might have been drawn from only two weeks of short-term data. These people can do the math but do not understand that the math does not matter if next week is radically different from the last two weeks.
Don't confuse experience with expertise or knowledge with wisdom.
Trader Effects
An observer effect is a concept from physics in which the act of measuring a phenomenon sometimes affects that phenomenon; the observer disturbs the experiment by the act of observing. A similar thing happens in trading: The act of trading itself can change the underlying market conditions on which the success of a trade is predicated. I call this a trader effect. Anything that repeats with enough consistency is likely to be noticed by several market participants. Similarly, a strategy that has worked especially well in the recent past is likely to be noticed by many traders. However, if too many traders start to try to take advantage of a particular strategy, that strategy will cease working as well as it did previously.
Live By the Ego, Die By the Ego
This is the major reason why beginning traders are drawn to discretionary trading. Discretionary trading feeds the ego; it is trading that relies on one's judgment, in contrast with systematic trading, where trading decisions are made by using rules that specify exactly when and how much to buy and sell. So when you use your judgment to trade and you win, the ego wins. You can then brag to your friends how you are the master of the markets.
I see this particular behavior constantly on online trading forums—especially the broad-based ones that attract new traders. You regularly see posts from individuals bragging about how they bought just before a run-up, or they have found the Holy Grail and have a 90 percent accurate system, or they have been trading for three months and have made 200 percent. They invariably have done this by trading with too much leverage, so they might have turned $5,000 into $15,000; however, they run a very high risk of losing that $15,000 because they are trading too aggressively. A few months later, you may see the same traders post that they have blown up their account and lost everything. These individuals were trading to feed their egos, and as the saying goes, live by the ego, die by the ego.
Humble Pie, The Best Food for Traders
If you want to be a great trader, you must conquer your ego and develop humility. Humility allows you to accept the future as something that is unknowable. Humility will keep you from trying to make predictions. Humility will keep you from taking it personally when a trade goes against you and you exit with a loss. Humility will let you embrace trading that is based on simple concepts because you won't have a need to know secrets so that you can feel special.
If you are searching for common patterns between the winners in this game, you can find a few here.
I particularly liked the psychology part of the book. Here are some quotes:
Scientists call distortions in the way people perceive reality cognitive biases. Here are some of the cognitive biases that affect trading:
• Loss aversion: The tendency for people to have a strong preference for avoiding losses over acquiring gains
• Sunk costs effect: The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future
• Disposition effect: The tendency for people to lock in gains and ride losses
• Outcome bias: The tendency to judge a decision by its outcome rather than by the quality of the decision at the time it was made
• Recency bias: The tendency to weigh recent data or experience more than earlier data or experience
• Anchoring: The tendency to rely too heavily, or anchor, on readily available information
• Bandwagon effect: The tendency to believe things because many other people believe them
• Belief in the law of small numbers: The tendency to draw unjustified conclusions from too little information
The Turtle Mind
• Think in terms of the long run when trading.
• Avoid outcome bias.
• Believe in the effects of trading with positive expectation.
The lessons of the Turtle class can be summed up in these four points:
1. Trade with an Edge: Find a trading strategy that will produce positive returns over the long run because it has a positive expectation.
2. Manage Risk: Control risk so that you can continue to trade or you may not be around to see the benefits of a positive expectation system.
3. Be Consistent: Execute your plan consistently to achieve the positive expectation of your system.
4. Keep It Simple: The core of our approach was simple: catch every trend. Two or three trades might account for all your profits, so don't miss a trend or you might kill your whole year. This is simple and easy to understand, not easy to do.
Dos and Don'ts for Thinking Like a Turtle
1. Trade in the present: Do not dwell on the past or try to predict the future. The former is counterproductive, and the latter is impossible.
2. Think in terms of probabilities, not prediction: Instead of trying to be right by predicting the market, focus on methods in which the probabilities are in your favor for a successful outcome over the long run.
3. Take responsibility for your own trades: Don't blame your mistakes and failures on others, the markets, your broker, and so forth. Take responsibility for your mistakes and learn from them.
To understand why this is important, let's dig further into the components that make up the edge for a system. System edges come from three components:
• Portfolio selection: The algorithms that select which markets are valid for trading on any specific day
• Entry signals: The algorithms that determine when to buy or sell to enter a trade
• Exit signals: The algorithms that determine when to buy or sell to exit a trade
Edges are found in the places that are the battlegrounds between buyers and sellers. Your task as a trader is to find those places and wait to see who wins and who loses.
Trading edges exist because of divergences in market perceptions and realities that result from cognitive biases. They exist because economists are wrong in their belief that market players are rational. Market players are not rational. Chapter 2 discussed how cognitive biases provide trading opportunities in a theoretical sense. This chapter will discuss that notion in further detail by using actual price data.
Support and Resistance
The concept of support and resistance is fundamental to almost all types of trading. Support and resistance is simply the tendency for prices not to exceed previous price levels. One can understand this concept most easily by examining its presence on a price chart.
Here is what I believe accounts for a trader's lack of success in trading commodities:
• No plan: Many traders base their trades on hunches, rumor, guesses, and the belief that they know something about the future direction of prices.
• Too much risk: Many otherwise excellent traders have been ruined because they incurred too much risk. I'm not talking about 50 percent or 100 percent more risk than is prudent. I have seen traders who trade at a level that is 5 or 10 times more than I consider prudent even for aggressive trading.
• Unrealistic expectations: Many new traders trade with too much risk because they have unrealistic expectations about how much they can earn and what sorts of returns they can achieve. This is often also the reason new traders believe they can start trading on the basis of fundamental data; they believe they are smart enough to 'beat' the market with little or no training and very little information.
The Myth of the Expert
The 'don't optimize' counsel is an effect of what my friends and I like to call the myth of the expert. Unfortunately, in most fields the number of people who really understand what's going on is very limited. For every true expert, there are scores of pseudo-experts who are able to perform in the field, have assembled loads of knowledge, and in the eyes of those who are not experts are indistinguishable from the true experts. These pseudo-experts can function but do not really understand the area in which they claim expertise.
True experts do not have rigid rules; they understand what's going on, and so they do not need rigid rules.
Pseudo-experts, however, don't understand, and so they tend to look at what the experts are doing and copy it. They know what to do but not why it should be done. Therefore, they listen to the true experts and create rigid rules where none were intended.
One sure sign of a pseudo-expert is writing that is unclear and difficult to follow. Unclear writing comes from unclear thinking. A true expert will be able to explain complicated ideas in ways that are clear and easy to understand.
Another common characteristic of pseudo-experts is that they know how to apply complex processes and techniques and have been well trained but do not understand the limits of those techniques.
In trading, a good example would be someone who can perform complex statistical analyses of trades, runs a simulation that generates 1,000 trades, and then assumes that she can draw conclusions from those trades without regard for the fact that they might have been drawn from only two weeks of short-term data. These people can do the math but do not understand that the math does not matter if next week is radically different from the last two weeks.
Don't confuse experience with expertise or knowledge with wisdom.
Trader Effects
An observer effect is a concept from physics in which the act of measuring a phenomenon sometimes affects that phenomenon; the observer disturbs the experiment by the act of observing. A similar thing happens in trading: The act of trading itself can change the underlying market conditions on which the success of a trade is predicated. I call this a trader effect. Anything that repeats with enough consistency is likely to be noticed by several market participants. Similarly, a strategy that has worked especially well in the recent past is likely to be noticed by many traders. However, if too many traders start to try to take advantage of a particular strategy, that strategy will cease working as well as it did previously.
Live By the Ego, Die By the Ego
This is the major reason why beginning traders are drawn to discretionary trading. Discretionary trading feeds the ego; it is trading that relies on one's judgment, in contrast with systematic trading, where trading decisions are made by using rules that specify exactly when and how much to buy and sell. So when you use your judgment to trade and you win, the ego wins. You can then brag to your friends how you are the master of the markets.
I see this particular behavior constantly on online trading forums—especially the broad-based ones that attract new traders. You regularly see posts from individuals bragging about how they bought just before a run-up, or they have found the Holy Grail and have a 90 percent accurate system, or they have been trading for three months and have made 200 percent. They invariably have done this by trading with too much leverage, so they might have turned $5,000 into $15,000; however, they run a very high risk of losing that $15,000 because they are trading too aggressively. A few months later, you may see the same traders post that they have blown up their account and lost everything. These individuals were trading to feed their egos, and as the saying goes, live by the ego, die by the ego.
Humble Pie, The Best Food for Traders
If you want to be a great trader, you must conquer your ego and develop humility. Humility allows you to accept the future as something that is unknowable. Humility will keep you from trying to make predictions. Humility will keep you from taking it personally when a trade goes against you and you exit with a loss. Humility will let you embrace trading that is based on simple concepts because you won't have a need to know secrets so that you can feel special.
September 3, 2024
As the title says, This is one of the 5 best trading books. It was timely for me to read this currently as the book focuses on Futures which is what I've been practicing with for the past year. It talks bout proper back testing and the what, how, and why it needs to be done properly. There were a few eye opening moments that showed me what I have been doing right and where I needed to adjust my thinking. It briefly touches on the psychology of trading, but mainly focuses on the bread and butter of the simple rules and why those rules can make or break a trader. There were some key terms that I wasn't familiar with such as MAE and MFE which I don't know how I ever got this far without understanding how fundamental those numbers are and why I need to pay attention to them! Overall this book put me on the right path and I feel solid in my trading after reading it. It's one of those books I'll probably buy and read again as reference as my trading career progresses. The story of the Turtle Traders is pretty fascinating and shows that profitable trading can be taught to anyone.
January 15, 2024
A better systems development book is Van Tharps “trade your way to financial freedom” a better psychology book is mark Douglas’ “Trading in the Zone” and a better overall history of the turtle traders is “the complete turtle trader.” If you’re looking for tips on how to properly backtest this is the book for you, however since my goals aren’t backtesting right now, I didn’t receive much use from this read. There are some decent tips on trading psychology, ego, and types of markets and environments however. Also, i entered this book expecting to read more on Faith’s personal experiences within the turtle program but that wasn’t the direction of this book. Somewhat of a let down, but if I ever need to do some backtesting for some reason, I might return to this book.
March 10, 2024
Decent information regarding the Turtles, book is outlining more swing trading over the course of weeks but still has value on those looking to day trade. Overall, the book teaches solid fundamentals that are required if one wants to be successful trading.
June 4, 2022
Cool book, makes me bullish on this strange market;)
August 21, 2024
Overview:
This book was written by a trader who participated in the famous turtles experiment which in short is a bet between 2 big traders on the topic that trading is not an inherited skill but a skill that could be taught to someone, which in itself makes this book an interesting read.
The author goes through his experience of joining the turtles experiment and the lessons taught there and how he got out to be one of those lucky guys to get selected and his overall experience of what went well & not.
There are just so many trading lessons that might be of interest to you if you trade in the markets but if not the book still has a lot of lessons related to life as well since most of us trying to survive in this economy have huge correlations about many things in life with trading, hence it is always interesting to see the world through the trader’s perspective.
Overall, the book had a lot of interesting elements in it for me so I enjoyed reading it.
My Notes & excerpts from the book:
“why the name Turtles? That name comes from the place where Dennis and Eckhardt stood when the long-running debate turned serious: a turtle farm in Singapore”
Reasoning for the name turtle
“In the fall of 1983 few people had personal computers; in fact, PCs had just been invented. Yet for the previous two years I had been programming the Apple II computer as a part-time job after school. I programmed the computer to analyze what were then known as systems: trading strategies with specific rules that defined exactly when to buy and sell stocks or commodities on the basis of their price movement. During those two years I had written 30 or 40 different programs that tested trading systems through the use of historical data to determine how much money would have been made if those systems had been used in various markets. I later realized that this was cutting-edge research in 1983”
Apple II used for backtesting in 1983
“It may surprise some people that Rich thought he could teach a group of traders in only two weeks. What surprises me now is that he thought it would take that long. In fact, in the second year Rich and Bill hired a new crop of Turtles and trained them in only one week. The difficulty in trading lies not in the concepts but in the application. It is relatively easy to learn what to do when trading. It is very difficult to apply those lessons in actual trading.”
About the duration of teaching some one to trade
“The airline industry, for example, is very sensitive to the cost of aviation fuel, which is tied to the price of oil. When the price of oil rises, profits drop unless ticket prices are raised. Raising ticket prices may lower sales of tickets and thus profits. Keeping ticket prices the same will lower profits as costs rise because of oil price increases. The solution is to hedge in the oil markets. Southwest Airlines had been doing that for years, and when oil prices rose from $25 per barrel to more than $60, its costs did not increase substantially. In fact, it was so well hedged that even years after prices started to go up, it was getting 85 percent of its oil at $26 per barrel. It is no coincidence that Southwest Airlines has been one of the most profitable airlines over the last several years. Southwest's executives realized that their business was to fly people from place to place, not to worry about the price of oil. They used the financial markets to insulate their bottom line from the effects of oil price fluctuations. They were smart. Who sells futures contracts to companies like Southwest that want to hedge their business risk? Traders do.”
A nice explanation of futures contracts with a real example of south west airlines
“Suppose that you want to buy stock XYZ and that XYZ last traded at $28.50. If you look for a price quote for XYZ, you will see two prices: the bid and the ask. For this example, let's say you get a quote on XYZ as $28.50 bid and $28.55 ask. This quote indicates that if you wanted to buy, you would have to pay $28.55, but if you wanted to sell, you would get only $28.50 for your XYZ stock. The difference between these two prices is known as the spread. Traders who trade liquidity risk often are referred to as scalpers or market makers. They make their money off the spread. A variant of this kind of trading is called arbitrage. This entails trading the liquidity of one market for the liquidity of another. Arbitrage traders may buy crude oil in London and sell crude oil in New York, or they may buy a basket of stocks and sell index futures that represent a similar basket of stocks.”
Explanation of 4 terminologies: spread, scalpers, market makers, arbitrage
“there are three types of traders involved in this transaction: • The hedger: ACME Corporation's trader in the hedging department, who wants to eliminate the price risk of currency fluctuation and hedges by offsetting that risk in the market • The scalper: Sam, the floor trader, who trades liquidity risk and quickly trades with the hedger, hoping to earn the spread • The speculator: Mr. Ice, who ultimately assumes the original "price risk" that ACME is trying to eliminate and is betting that the price will go down over the next few days or weeks”
A really good explanation
“In his informative and engaging book Against the Gods: The Remarkable Story of Risk, Peter Bernstein discusses how markets developed to allow the transfer of risk from one party to another. This is indeed the reason financial markets were created and a function they continue to serve.”
Interesting definition of stock market
“the term liquidity as it applies to finance in the context of the term liquid assets. Liquid assets are assets that can be turned into cash readily and quickly. Cash in the bank is extremely liquid, stock in a widely traded company is relatively liquid, and a piece of land is illiquid.”
On liquidity
“Hedgers focus on getting rid of price risk by transferring the risk to traders who deal in price risk. Traders who jump on price risk are known as speculators or position traders. Speculators make money by buying and then selling later if the price goes up or by selling first and then buying back later when the price goes down—what is known as going short.”
Connecting dots for hedgers, speculators, positional traders, short sellers
“the size of a contract was based on the quantity that would fit into a single railroad car: 5,000 bushels for grains, 112,000 pounds for sugar, 1,000 barrels for oil, and so on. For this reason, contracts sometimes are referred to as cars”
Reasoning for why futures contracts are called as cars
“Trading takes place in units of a single contract: You cannot buy or sell less than one contract. The exchange's contract specification also defines the minimum price fluctuation. This is referred to in the industry as a tick or minimum tick.”
Definition of minimum tick
“For many years economic and financial theory was based on the rational actor theory, which stated that individuals act rationally and consider all available information in the decision-making process. Traders have always known that this notion is pure bunk. Winning traders make money by exploiting the consistently irrational behavior patterns of other traders. Academic researchers have uncovered a surprisingly large amount of evidence demonstrating that most individuals do not act rationally. Dozens of categories of irrational behavior and repeated errors in judgment have been documented in academic studies. Traders find it very puzzling that anyone ever thought otherwise. The Turtle Way works and continues to work because it is based on the market movements that result from the systematic and repeated irrationality that is embedded in every person.”
Why turtle way works
“The field of behavioral finance—brought to popular attention in Robert Shiller's fascinating book, now in its Second Edition, titled Irrational Exuberance and greater details of which were published by Hersh Shefrin in his classic Beyond Greed and Fear—helps traders and investors understand the reasons why markets operate the way they do.”
Behavioural finance book recommendations
“People have developed certain ways of looking at the world that served them well in more primitive circumstances; however, when it comes to trading, those perceptions get in the way. Scientists call distortions in the way people perceive reality cognitive biases. Here are some of the cognitive biases that affect trading”
cognitive biases that affect trading
“Research has suggested that losses can have as much as twice the psychological power of gains.”
“A Turtle never tries to predict market direction but instead looks for indications that a market is in a particular state. This is an important concept. Good traders don't try to predict what the market will do; instead they look at the indications of what the market is doing.”
Indications of market states (read above section for the different types of market states)
“A Turtle never tries to predict market direction but instead looks for indications that a market is in a particular state. This is an important concept. Good traders don't try to predict what the market will do; instead they look at the indications of what the market is doing.”
Indications of market states (read above section for the different types of market states)
“The lessons of the Turtle class can be summed up in these four points: 1. Trade with an Edge: Find a trading strategy that will produce positive returns over the long run because it has a positive expectation. 2. Manage Risk: Control risk so that you can continue to trade or you may not be around to see the benefits of a positive expectation system. 3. Be Consistent: Execute your plan consistently to achieve the positive expectation of your system. 4. Keep It Simple: The core of our approach was simple: catch every trend. Two or three trades might account for all your profits, so don't miss a trend or you might kill your whole year. This is simple and easy to understand, not easy to do.”
lessons of the Turtle class
“Both Rich and Bill taught the class, and their innovative perspectives struck me from the beginning. They approached the markets scientifically and through the use of reason, and developed a very mature understanding of the principles behind their success. Rich and Bill did not rely on gut feelings. Instead, they based their methods on experimentation and investigation. They did not use anecdotal evidence but relied on computerized analysis to determine what worked and what did not. Their intensive scientific research gave them a special type of confidence in thinking about trading that has been crucial to their success. (This is what had given Rich the confidence required to stake his money on being able to teach a group of neophytes to trade in the first place.)”
Rich & Bill’s approach towards market/trading
“The Turtles were taught to use limit orders rather than market orders”
“gamblers operate in teams. One team member might count at the table and then indicate to another team member when the odds had turned. That other member would show up as a new player and then proceed to bet from the start at a much higher level. Team members would then pool their money at the end of the night. These methods work because the professional gamblers have a system with an edge.”
About how gamblers play as a team against the house
“The Turtle Mind • Think in terms of the long run when trading. • Avoid outcome bias. • Believe in the effects of trading with positive expectation.”
“The Turtles were encouraged to look at the long-term results of a specific approach and ignore the losses we expected to incur while trading with that approach. In fact, we were taught that periods of losses usually precede periods of good trading. This training was critical to both the Turtles' potential success and their ability to keep trading according to a specific set of rules through extended periods of losing trades.”
“breakout, sometimes referred to as Donchian channels after Richard Donchian, who popularized the breakout method of trading. The basic idea was to buy if a market exceeded the highest price for a particular number of preceding days, that is, broke out of its prior price levels.”
Breakouts, invention period
“Over the years I kept finding evidence that emotional and psychological strength are the most important ingredients in successful trading. This was my first exposure to that idea and the first time I had seen it in action”
Lessons after the first practice trade, profitable
“After witnessing the success of the Turtles, many traders and investors have concluded that Richard Dennis won his bet with Bill Eckhardt that trading can be taught. I don't agree. I think the bet was a draw.”
The match is a draw
“Turtles do not care about being right. They care about making money. Turtles do not pretend to be able to predict the future. They never look at markets and say: "Gold is going up." They look at the future as unknowable in specifics but foreseeable in character. In other words, it is impossible to know whether a market is going to go up or down or whether a trend will stop now or in two months. You do know that there will be trends and that the character of price movement will not change because human emotion and cognition will not change.”
Turtles mindset
“The trades are divided into bars on the basis of the amount of profit they earned divided by the amount risked on a trade. This concept is known as an R-multiple and was invented by the trader Chuck Branscomb as a convenient way to compare trades between systems and between markets. (R-multiples were popularized by Van Tharp in his book Trade Your Way to Financial Freedom.)”
R-multiples
“The term edge is borrowed from gambling theory and refers to the statistical advantage held by the casino. It also refers to the advantage that can be gained by counting cards when one is playing blackjack. Without an edge in games of chance, you will lose money in the long run”
The origin of an edge
“Traders refer to the maximum move in the bad direction as the maximum adverse excursion (MAE) and the maximum move in the good direction as the maximum favorable excursion (MFE)”
Definition of MAE/MFE
“First, you need a way to equate price movement across different markets. Second, you need a way to determine the time period over which to measure the average MFE and average MAE. To normalize the MFE and MAE across markets so that you can compare the averages meaningfully, you can use the same mechanism the Turtles used to normalize the size of our trades across markets: equating them by using the average true range (ATR).”
ATR indicator use
“You can also use the E-ratio to examine the major components of the Donchian Trend system. The two major components of the entries for this system are a Donchian channel breakout and a trend portfolio filter. The Donchian channel breakout is a rule that states that one should buy when the price exceeds the highest high of the previous 20 days and sell short when the price goes lower than the lowest low of the previous 20 days. The trend portfolio filter means that you can initiate long trades only in markets in which the 50-day moving average is higher than the 300-day moving average and can initiate short trades only in markets in which the 50-day moving average is lower than the 300-day moving average. One of the roles of the portfolio filter is to eliminate markets that are not in a market state favorable to this system.”
About Donchian Trend system
“Imagine that you are a trader who wants to buy coffee. When the price first went to $1.13, you might have wished or hoped that it would go even lower and therefore might not have purchased coffee at that price. As the price climbed to $1.23 over the next several days, you would have been very unhappy that you did not buy any coffee below $1.15 because you are now anchoring on that recent $1.13 low which becomes the basis for a more concrete sense of a "low" price. Thus, when the price drops below $1.15 a few days later, you will be much more likely to buy even though the price is the same as it was the last time the price was there a few days earlier. The effect of anchoring and the recency bias will cause you to consider any price below $1.15 as reasonably low and therefore a good price at which to buy. Since many market participants similarly consider a price below $1.15 as good, any pause in the price movement below that price probably will result in more buyers coming into the market. This influx of new buyers at points of support creates a tendency for market prices to bounce off the price levels of previous highs and lows.”
Real world / coffee example of anchoring & recency bias
“The source of the edge for trend followers is the gap in human perception at the time when support and resistance breaks down. At those times, people hold on to previous beliefs for too long and the market does not move quickly enough to reflect the new reality. That is why there is a statistically significant tendency for the markets to move further when support and resistance breaks down than at other times.”
Definition of an edge wrt support/resistance
“The prices near the edges of support and resistance represent what I call points of price instability”
points of price instability
“The MAR Ratio
The MAR ratio is a measure that was devised by Managed Accounts Reports, LLC, which reports on the performance of hedge funds. The MAR ratio divides the annual return by the largest drawdown, using month-end figures. This ratio serves as a quick and dirty direct measure of risk/reward that I find very useful for filtering out poorly performing strategies. It is very good for a rough cut. The Donchian Trend system had a MAR ratio of 1.22 over the period tested above from January 1996 to June 2006, where the CAGR% was 27.38 percent and the maximum drawdown using month-end figures was 22.35 percent
MAR Ratio
“in Figure 7-1, which uses a logarithmic scale that tends to make drawdowns look smaller than they look on a standard scale.”
Explanation of how big drawdowns look smaller in logarithmic scale charts
This book was written by a trader who participated in the famous turtles experiment which in short is a bet between 2 big traders on the topic that trading is not an inherited skill but a skill that could be taught to someone, which in itself makes this book an interesting read.
The author goes through his experience of joining the turtles experiment and the lessons taught there and how he got out to be one of those lucky guys to get selected and his overall experience of what went well & not.
There are just so many trading lessons that might be of interest to you if you trade in the markets but if not the book still has a lot of lessons related to life as well since most of us trying to survive in this economy have huge correlations about many things in life with trading, hence it is always interesting to see the world through the trader’s perspective.
Overall, the book had a lot of interesting elements in it for me so I enjoyed reading it.
My Notes & excerpts from the book:
“why the name Turtles? That name comes from the place where Dennis and Eckhardt stood when the long-running debate turned serious: a turtle farm in Singapore”
Reasoning for the name turtle
“In the fall of 1983 few people had personal computers; in fact, PCs had just been invented. Yet for the previous two years I had been programming the Apple II computer as a part-time job after school. I programmed the computer to analyze what were then known as systems: trading strategies with specific rules that defined exactly when to buy and sell stocks or commodities on the basis of their price movement. During those two years I had written 30 or 40 different programs that tested trading systems through the use of historical data to determine how much money would have been made if those systems had been used in various markets. I later realized that this was cutting-edge research in 1983”
Apple II used for backtesting in 1983
“It may surprise some people that Rich thought he could teach a group of traders in only two weeks. What surprises me now is that he thought it would take that long. In fact, in the second year Rich and Bill hired a new crop of Turtles and trained them in only one week. The difficulty in trading lies not in the concepts but in the application. It is relatively easy to learn what to do when trading. It is very difficult to apply those lessons in actual trading.”
About the duration of teaching some one to trade
“The airline industry, for example, is very sensitive to the cost of aviation fuel, which is tied to the price of oil. When the price of oil rises, profits drop unless ticket prices are raised. Raising ticket prices may lower sales of tickets and thus profits. Keeping ticket prices the same will lower profits as costs rise because of oil price increases. The solution is to hedge in the oil markets. Southwest Airlines had been doing that for years, and when oil prices rose from $25 per barrel to more than $60, its costs did not increase substantially. In fact, it was so well hedged that even years after prices started to go up, it was getting 85 percent of its oil at $26 per barrel. It is no coincidence that Southwest Airlines has been one of the most profitable airlines over the last several years. Southwest's executives realized that their business was to fly people from place to place, not to worry about the price of oil. They used the financial markets to insulate their bottom line from the effects of oil price fluctuations. They were smart. Who sells futures contracts to companies like Southwest that want to hedge their business risk? Traders do.”
A nice explanation of futures contracts with a real example of south west airlines
“Suppose that you want to buy stock XYZ and that XYZ last traded at $28.50. If you look for a price quote for XYZ, you will see two prices: the bid and the ask. For this example, let's say you get a quote on XYZ as $28.50 bid and $28.55 ask. This quote indicates that if you wanted to buy, you would have to pay $28.55, but if you wanted to sell, you would get only $28.50 for your XYZ stock. The difference between these two prices is known as the spread. Traders who trade liquidity risk often are referred to as scalpers or market makers. They make their money off the spread. A variant of this kind of trading is called arbitrage. This entails trading the liquidity of one market for the liquidity of another. Arbitrage traders may buy crude oil in London and sell crude oil in New York, or they may buy a basket of stocks and sell index futures that represent a similar basket of stocks.”
Explanation of 4 terminologies: spread, scalpers, market makers, arbitrage
“there are three types of traders involved in this transaction: • The hedger: ACME Corporation's trader in the hedging department, who wants to eliminate the price risk of currency fluctuation and hedges by offsetting that risk in the market • The scalper: Sam, the floor trader, who trades liquidity risk and quickly trades with the hedger, hoping to earn the spread • The speculator: Mr. Ice, who ultimately assumes the original "price risk" that ACME is trying to eliminate and is betting that the price will go down over the next few days or weeks”
A really good explanation
“In his informative and engaging book Against the Gods: The Remarkable Story of Risk, Peter Bernstein discusses how markets developed to allow the transfer of risk from one party to another. This is indeed the reason financial markets were created and a function they continue to serve.”
Interesting definition of stock market
“the term liquidity as it applies to finance in the context of the term liquid assets. Liquid assets are assets that can be turned into cash readily and quickly. Cash in the bank is extremely liquid, stock in a widely traded company is relatively liquid, and a piece of land is illiquid.”
On liquidity
“Hedgers focus on getting rid of price risk by transferring the risk to traders who deal in price risk. Traders who jump on price risk are known as speculators or position traders. Speculators make money by buying and then selling later if the price goes up or by selling first and then buying back later when the price goes down—what is known as going short.”
Connecting dots for hedgers, speculators, positional traders, short sellers
“the size of a contract was based on the quantity that would fit into a single railroad car: 5,000 bushels for grains, 112,000 pounds for sugar, 1,000 barrels for oil, and so on. For this reason, contracts sometimes are referred to as cars”
Reasoning for why futures contracts are called as cars
“Trading takes place in units of a single contract: You cannot buy or sell less than one contract. The exchange's contract specification also defines the minimum price fluctuation. This is referred to in the industry as a tick or minimum tick.”
Definition of minimum tick
“For many years economic and financial theory was based on the rational actor theory, which stated that individuals act rationally and consider all available information in the decision-making process. Traders have always known that this notion is pure bunk. Winning traders make money by exploiting the consistently irrational behavior patterns of other traders. Academic researchers have uncovered a surprisingly large amount of evidence demonstrating that most individuals do not act rationally. Dozens of categories of irrational behavior and repeated errors in judgment have been documented in academic studies. Traders find it very puzzling that anyone ever thought otherwise. The Turtle Way works and continues to work because it is based on the market movements that result from the systematic and repeated irrationality that is embedded in every person.”
Why turtle way works
“The field of behavioral finance—brought to popular attention in Robert Shiller's fascinating book, now in its Second Edition, titled Irrational Exuberance and greater details of which were published by Hersh Shefrin in his classic Beyond Greed and Fear—helps traders and investors understand the reasons why markets operate the way they do.”
Behavioural finance book recommendations
“People have developed certain ways of looking at the world that served them well in more primitive circumstances; however, when it comes to trading, those perceptions get in the way. Scientists call distortions in the way people perceive reality cognitive biases. Here are some of the cognitive biases that affect trading”
cognitive biases that affect trading
“Research has suggested that losses can have as much as twice the psychological power of gains.”
“A Turtle never tries to predict market direction but instead looks for indications that a market is in a particular state. This is an important concept. Good traders don't try to predict what the market will do; instead they look at the indications of what the market is doing.”
Indications of market states (read above section for the different types of market states)
“A Turtle never tries to predict market direction but instead looks for indications that a market is in a particular state. This is an important concept. Good traders don't try to predict what the market will do; instead they look at the indications of what the market is doing.”
Indications of market states (read above section for the different types of market states)
“The lessons of the Turtle class can be summed up in these four points: 1. Trade with an Edge: Find a trading strategy that will produce positive returns over the long run because it has a positive expectation. 2. Manage Risk: Control risk so that you can continue to trade or you may not be around to see the benefits of a positive expectation system. 3. Be Consistent: Execute your plan consistently to achieve the positive expectation of your system. 4. Keep It Simple: The core of our approach was simple: catch every trend. Two or three trades might account for all your profits, so don't miss a trend or you might kill your whole year. This is simple and easy to understand, not easy to do.”
lessons of the Turtle class
“Both Rich and Bill taught the class, and their innovative perspectives struck me from the beginning. They approached the markets scientifically and through the use of reason, and developed a very mature understanding of the principles behind their success. Rich and Bill did not rely on gut feelings. Instead, they based their methods on experimentation and investigation. They did not use anecdotal evidence but relied on computerized analysis to determine what worked and what did not. Their intensive scientific research gave them a special type of confidence in thinking about trading that has been crucial to their success. (This is what had given Rich the confidence required to stake his money on being able to teach a group of neophytes to trade in the first place.)”
Rich & Bill’s approach towards market/trading
“The Turtles were taught to use limit orders rather than market orders”
“gamblers operate in teams. One team member might count at the table and then indicate to another team member when the odds had turned. That other member would show up as a new player and then proceed to bet from the start at a much higher level. Team members would then pool their money at the end of the night. These methods work because the professional gamblers have a system with an edge.”
About how gamblers play as a team against the house
“The Turtle Mind • Think in terms of the long run when trading. • Avoid outcome bias. • Believe in the effects of trading with positive expectation.”
“The Turtles were encouraged to look at the long-term results of a specific approach and ignore the losses we expected to incur while trading with that approach. In fact, we were taught that periods of losses usually precede periods of good trading. This training was critical to both the Turtles' potential success and their ability to keep trading according to a specific set of rules through extended periods of losing trades.”
“breakout, sometimes referred to as Donchian channels after Richard Donchian, who popularized the breakout method of trading. The basic idea was to buy if a market exceeded the highest price for a particular number of preceding days, that is, broke out of its prior price levels.”
Breakouts, invention period
“Over the years I kept finding evidence that emotional and psychological strength are the most important ingredients in successful trading. This was my first exposure to that idea and the first time I had seen it in action”
Lessons after the first practice trade, profitable
“After witnessing the success of the Turtles, many traders and investors have concluded that Richard Dennis won his bet with Bill Eckhardt that trading can be taught. I don't agree. I think the bet was a draw.”
The match is a draw
“Turtles do not care about being right. They care about making money. Turtles do not pretend to be able to predict the future. They never look at markets and say: "Gold is going up." They look at the future as unknowable in specifics but foreseeable in character. In other words, it is impossible to know whether a market is going to go up or down or whether a trend will stop now or in two months. You do know that there will be trends and that the character of price movement will not change because human emotion and cognition will not change.”
Turtles mindset
“The trades are divided into bars on the basis of the amount of profit they earned divided by the amount risked on a trade. This concept is known as an R-multiple and was invented by the trader Chuck Branscomb as a convenient way to compare trades between systems and between markets. (R-multiples were popularized by Van Tharp in his book Trade Your Way to Financial Freedom.)”
R-multiples
“The term edge is borrowed from gambling theory and refers to the statistical advantage held by the casino. It also refers to the advantage that can be gained by counting cards when one is playing blackjack. Without an edge in games of chance, you will lose money in the long run”
The origin of an edge
“Traders refer to the maximum move in the bad direction as the maximum adverse excursion (MAE) and the maximum move in the good direction as the maximum favorable excursion (MFE)”
Definition of MAE/MFE
“First, you need a way to equate price movement across different markets. Second, you need a way to determine the time period over which to measure the average MFE and average MAE. To normalize the MFE and MAE across markets so that you can compare the averages meaningfully, you can use the same mechanism the Turtles used to normalize the size of our trades across markets: equating them by using the average true range (ATR).”
ATR indicator use
“You can also use the E-ratio to examine the major components of the Donchian Trend system. The two major components of the entries for this system are a Donchian channel breakout and a trend portfolio filter. The Donchian channel breakout is a rule that states that one should buy when the price exceeds the highest high of the previous 20 days and sell short when the price goes lower than the lowest low of the previous 20 days. The trend portfolio filter means that you can initiate long trades only in markets in which the 50-day moving average is higher than the 300-day moving average and can initiate short trades only in markets in which the 50-day moving average is lower than the 300-day moving average. One of the roles of the portfolio filter is to eliminate markets that are not in a market state favorable to this system.”
About Donchian Trend system
“Imagine that you are a trader who wants to buy coffee. When the price first went to $1.13, you might have wished or hoped that it would go even lower and therefore might not have purchased coffee at that price. As the price climbed to $1.23 over the next several days, you would have been very unhappy that you did not buy any coffee below $1.15 because you are now anchoring on that recent $1.13 low which becomes the basis for a more concrete sense of a "low" price. Thus, when the price drops below $1.15 a few days later, you will be much more likely to buy even though the price is the same as it was the last time the price was there a few days earlier. The effect of anchoring and the recency bias will cause you to consider any price below $1.15 as reasonably low and therefore a good price at which to buy. Since many market participants similarly consider a price below $1.15 as good, any pause in the price movement below that price probably will result in more buyers coming into the market. This influx of new buyers at points of support creates a tendency for market prices to bounce off the price levels of previous highs and lows.”
Real world / coffee example of anchoring & recency bias
“The source of the edge for trend followers is the gap in human perception at the time when support and resistance breaks down. At those times, people hold on to previous beliefs for too long and the market does not move quickly enough to reflect the new reality. That is why there is a statistically significant tendency for the markets to move further when support and resistance breaks down than at other times.”
Definition of an edge wrt support/resistance
“The prices near the edges of support and resistance represent what I call points of price instability”
points of price instability
“The MAR Ratio
The MAR ratio is a measure that was devised by Managed Accounts Reports, LLC, which reports on the performance of hedge funds. The MAR ratio divides the annual return by the largest drawdown, using month-end figures. This ratio serves as a quick and dirty direct measure of risk/reward that I find very useful for filtering out poorly performing strategies. It is very good for a rough cut. The Donchian Trend system had a MAR ratio of 1.22 over the period tested above from January 1996 to June 2006, where the CAGR% was 27.38 percent and the maximum drawdown using month-end figures was 22.35 percent
MAR Ratio
“in Figure 7-1, which uses a logarithmic scale that tends to make drawdowns look smaller than they look on a standard scale.”
Explanation of how big drawdowns look smaller in logarithmic scale charts
July 16, 2008
I enjoyed the story and how it compelled me to think on a personal level. When reading most books on stock market investing, readers may feel as though they're being lectured. This book may have lessons to learn from yet it translates in a way (Turtle Way) that the author is sharing his experiences as a former Turtle day trader. Some notable lessons include market patterns, managing risks, trader biases and logging your studies.
As I approach the end of the book, I was disappointed to discover that I am not worthy to be a Turtle because I lack the material parameters. This goes to show that not every way, Turtle Way or otherwise, is right for me. That is, anyway, until I reach those parameters.
As I approach the end of the book, I was disappointed to discover that I am not worthy to be a Turtle because I lack the material parameters. This goes to show that not every way, Turtle Way or otherwise, is right for me. That is, anyway, until I reach those parameters.
April 10, 2012
Don't expect to find here any read-to-use trading rules. Or maybe I've missed something :)
Nevertheless it is quite a nice read, and it contains a number of interesting observations about financial markets and trading.
Probably the most important observation is that trader should not try to predict the market direction for it is simply not possible.
The key to trading is to be systematic, and use the thoroughly tested system, even if it occasionally generates loses. As long as you are convinced it will turn around in a longer period.
Since you need capital to trade, you should be pay a lot of attention to position sizing for avoiding risk of blowing up. As long as you have the system with the edge and the capital, you are in the game.
Nevertheless it is quite a nice read, and it contains a number of interesting observations about financial markets and trading.
Probably the most important observation is that trader should not try to predict the market direction for it is simply not possible.
The key to trading is to be systematic, and use the thoroughly tested system, even if it occasionally generates loses. As long as you are convinced it will turn around in a longer period.
Since you need capital to trade, you should be pay a lot of attention to position sizing for avoiding risk of blowing up. As long as you have the system with the edge and the capital, you are in the game.
January 29, 2014
A fairly good book on trading concepts and mindsets. Curtis Faith being one of the original and more successful of the Turtle group. Some criticism of special treatment had been leveled at him of favoritism by other members which he addresses. Essentially Curtis says he was successful because he followed the rules and was more disciplined. He offers some pretty solid and realistic advice on what it takes to survive and then succeed in the rough and tumble world of trading. Though the experiment of the Turtles took place years ago much of what came out of it is still relevant today. A worthwhile read for those interested in gaining a foothold on this challenging endeavor.
July 12, 2013
The book is pretty good it describes that trading is hard job which demands good preparation, a lot of patience. Strategy must be completed with risk assessment. I think that turtles were successful because they have one of the best mentors and at their time market was much simpler than nowadays. Anyway whether you are discretionary trader or automation fan it is worth reading.
August 26, 2019
- Good job explaining how focused learning approaches, analytical thinking and avoiding biases can lead to trading success.
- I found the biases especially interesting when applying to other aspects of my life.
- You'll be disappointed if you're looking for the nuts and blots of how to make money trading. It focus more on the correct approach.
- I found the biases especially interesting when applying to other aspects of my life.
- You'll be disappointed if you're looking for the nuts and blots of how to make money trading. It focus more on the correct approach.
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January 22, 2008Very good book about Technical Trading. It is also philosophical and explores human psychology. One chapter includes the specific filters that the now legendary group Turtles used to earn extremely high returns for years, the author being the best performing amongst this legendary group.
May 17, 2011
Very interesting book, especially for someone whose kind of math geeky like Faith. Couldn't finish it cause ultimately I'm not THAT interested/don't have that much attention span for trading (as appose to investing which I'm much more interested in).
July 17, 2013
Are you serious about trading financial instruments - stocks, options, futures, etc? If so, this book should be in your reading list. You will learn a systematic and psychological approach to trading.
August 25, 2007
Will definitley give you a good perspective on all those 'genius' traders out there. Not far off from Trading Places.
March 5, 2013
On page 179 so far. Wish there were more examples, real life examples, from Curtis' experience as a Turtle.
April 7, 2010
Basic test [yes/no:]: Would I recommend you read this book or not. Was it worth the few hours spent reading it? Am I pleased that I spent the time reading it? --- Yes ---
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March 5, 2011Suggested by my husband, I realized that I have absolutely no interest in this subject....officially abandoned.
April 20, 2012
This book contains lots of ideas on backtesting methods to trade more methodically.
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