Trade Like a Turtle.....

Richard Dennis was a Wall Street legend who made millions by investing according to a few simple trading rules. Richard believed that successful trading was a skill that could be taught to anyone. He made a bet with his partner Bill Eckhardt and placed a newspaper ad to recruit novice investors and taught them to trade using his rules. These novice investors became known as the Turtles and following Richard’s trend following trading rules and philosophy, they became very wealthy. Over 40 years later a number of these Turtles including Jerry Parker of Chesapeake Capital continue to be extremely successful by executing a Systematic, Rules Based, Trading Strategy advocated
by Richard Dennis all those years ago.

Let’s Start with the Rules…..

Richard Dennis instilled in the Turtles the belief that a trade was successful if you followed your rules.  It didn’t matter if you lost money on any one specific trade because if you executed your trading rules consistently over time you would be successful. Many traders believe the key to success is having some holy grail entry signal.  The entry is really not any more important than any of the other trading rules. A complete trading strategy must include the following rules:

  1. What Markets to Trade
  2. How to Identify Trending Markets
  3. How to Enter the Trade
  4. How to Exit the Trade if you are wrong
  5. How to Protect your Capital
  6. How to Exit a Profitable Trade

Make Sure the Rules Work…..

The reason that Dennis was not worried about the Turtles losing on any one specific trade was because he was confident that his trading rules were profitable over the long term. The real secret to success is you must have the confidence to take each and every trade that your trading system generates as the next trade could be responsible for the majority of your profit for the year. You can’t afford to miss that trade. The benefit of having a set of complete trading rules is that you can apply your rules to historical charts to see how they would have performed in the past. Once you have an extensive backtest record it is much easier to trust your trading signals and systematically execute your trading strategy.

Systematically Execute the Rules…..

As Richard Dennis reinforced with the Turtles, you can’t afford to miss the next trade as it could be your most profitable. When you complete a backtest and prove to yourself that you have a profitable trading strategy it makes it emotional easier to follow your trading rules. Every day you must review the markets you have decided to trade to see if your entry signal rule has been met. You must have an iron clad process in place to review your existing holdings daily to ensure that stop losses or profit stops have been placed and are valid so you are automatically stopped out if the market turns against you. Systematically executing your trading strategy is the secret sauce for successful trading!

A Trading Journal is Key…..

The key to the Turtles success was their ability to religiously follow their trading strategy. This may sound easy but during turbulent market conditions or after a large drawdown it is extremely difficult to do. The Turtles had Richard Dennis’s oversight to help them with this. As a trader you will need to take on this responsibility yourself and become the CEO of your Trading Strategy. A Trading Journal is a great tool to help with this. Your Trading Journal will help with the systematic execution of your trading rules and documentation of all your trades. The Trading Journal incorporates the specifics of your trading rules and clearly defines the entry price, number of shares to trade, stop loss price, trade gain/loss and the trade R-multiple. The Trading Journal documents every trade including buy and sell costs and includes a chart link so you can always go back and review entry and exit details.

Know Your Numbers…..

The key to business success of any good CEO’s is that they know their financial numbers. They set up Key Performance Indicators (KPI’s) that inform them if they are on track to meet their profit targets each quarter.  As CEO of your Trading Strategy, you need to know your numbers and monitor your KPI’s to be profitable. A Trading Journal will keep you on track so can monitor key trading KPI’s including monthly profit/loss, maximum account drawdown as well as your compound Annual Growth Rate (CAGR).

Review, Refine and Improve…..

The key to being a successful trader is the confidence to trust your trading rules without second guessing them. Your backtest proved that your trading rules were profitable but past performance is no guarantee of future results. You need to Benchmark your actual trading results with your backtest results to confirm your trading strategy is still working. A good graphic Benchmark comparison of your backtest results versus actual trading results.

Get the Tools.....

We have bundled the tools described above, plus many more, in a powerful, Excel based, Trading Journal. The Journal includes everything you need to Build and Execute a Profitable, Systematic, Rules-Based, Trading Strategy!

GET THE TOOLS

.....and Trade Like a Turtle