Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders
12/01/2007 12:00 am EST
If you are new to trading you may not be familiar with the story of the Turtles, a group of individuals, assembled by legendary trader Richard Dennis, who he taught to trade. The basis for this experiment was a bet with another well-known trader as to whether it was possible to teach someone to trade. This test was successful as they reportedly made $100 million for Dennis and his company in four years. Curtis M. Faith was one of the original turtles and just 19 when he joined the experiment, and while a good part of the book deals with his experience as a Turtle there is much more. In an interview at the recent Traders Expo in Las Vegas, Curtis said about the book: “I sat down and wrote everything I could about what I wished I had been taught about trading” . This does not imply that Curtis was not sufficiently educated by Dennis, just that he has since expanded on his knowledge of trading.
In the early chapters he shares the history of how he became a Turtle along with some insights and lessons he learned from his fellow Turtles. Discussed in the second chapter is what appears to be his core belief: that, “to trade well you need to understand the human mind”, which is more important than your system or method. The section in this chapter titled “Emotional Rescue”, if taken to heart, will give the beginning trader a giant step forward. He also notes that predicting a market’s direction is not part of being a successful trader and can actually be counterproductive.
Also discussed in early chapters is why probability and game theory are important concepts for traders to understand, as is the ‘risk-to-ruin’ concept, which most beginning traders never hear about. In a later chapter there is also a section entitled “Turtle Money Management Means Staying In the Game” in which he points out that all a trader needs to do to be successful is to gain an “edge”. One of the more interesting chapters in my opinion was “Falling off the Edge”, which includes a very interesting perspective of support and resistance.
As the book progresses, the topics become more complex as he reviews the common ways to measure whether a system or manager is successful. Curtis explains very well the various statistical methods used to analyze trading results, and in a later chapter introduces his own method, called “R-Cubed”. This becomes more important as specific systems are reviewed and tested in the last third of the book. Though there is quite a bit of valuable advice for the beginning trader throughout the book such as what the author feels are the main causes for a trader’s lack of success, many novices may find the last half of the book to be over their heads. The last five chapters might be too complicated and mathematical for the beginning trader, however the advanced trader or system developer will find the discussion of trading systems, position size, and money management extremely helpful.
In these later chapters several specific Turtle-Style trading methods are discussed and tested, but more time is spent on various ways to quantify trading results. This helps him to expose many of the falsehoods and misrepresentations that the sellers of many hyped-up trading systems do not reveal. In contrast, he does provide a thorough testing of some of the Turtle-Style Trading methods and in the process illustrates how minor modifications of the testing procedure can dramatically alter the results. This is where he introduces his own measure of risk/reward called the R-Cubed along with a review of optimization, Monte Carlo simulation, trade scrambling, and much more.
In a bonus chapter you get the Original Turtle Trading Rules and while their simplicity may surprise many readers, the author quotes Richard Dennis regarding the success of his methods as saying “The key is consistency and discipline.” Though I can without any reservations say that this should be part of every serious trader’s library, it is not an easy book to read and the later chapters will overwhelm many novice traders. Speaking personally, I will need additional readings of the late chapters before I can put all of it together. Whether you are a novice or experienced trader, the “Ways of the Turtle” has a good chance of improving your trading results, but, like the path to becoming a successful trader, it will take some hard work.