Trading Nest

Richard Dennis

b. 1949 · Commodity futures · Known for: The Turtle Traders experiment

Strategy you can use

Turtle Trading System (System 2)

A fully rule-based breakout system with volatility-based position sizing—the method taught to the original Turtles.

Style
Mechanical trend following
Timeframe
Daily
Markets
Diversified futures, liquid ETFs
Level
Intermediate

1. Setup

  1. 1Trade a diversified basket of liquid markets.
  2. 2Compute N = 20-day Average True Range (ATR).
  3. 3Unit size = (1% of account) ÷ (N × point value).

2. Entry rules

  1. 1Buy on a break of the 55-day high; short on a break of the 55-day low.
  2. 2Add 1 unit every ½N in your favour, up to 4 units.

3. Exit rules

  1. 1Exit longs on a 20-day low; exit shorts on a 20-day high.
  2. 2Initial stop 2N from entry; raise stops ½N with each added unit.

4. Risk management

  1. 1Max 4 units per market, 6 in correlated markets, 12 per direction total.
  2. 2Reduce unit size 20% after a 10% drawdown.

Common mistakes

  1. Skipping signals after a losing streak (the next one is often the big winner).
  2. Trading too few markets.
  3. Overriding rules with discretion.

An educational interpretation of publicly known principles, not the trader's exact proprietary method. Backtest and paper-trade before risking real money. Not financial advice.

The story

Dennis reportedly turned a small stake into tens of millions trading futures in Chicago. In 1983 he bet his partner William Eckhardt that trading could be taught.

He recruited and trained a group of novices, the 'Turtles', on a mechanical trend-following system. Several went on to successful careers, supporting the idea that rules and discipline matter more than talent.

Lessons for traders today

  • A simple, consistent system beats gut feeling.
  • Position sizing based on volatility keeps risk even.
  • Following rules during losing streaks is the hard part.