Richard Dennis demonstrated that with the right trading methodology and psychology, even trading novices can cultivate mastery. His rags-to-riches journey reveals why all aspiring traders should adopt process-centric strategies rooted in persistence, risk control, and tuning out noise – not chasing quick windfalls.
Turning $1,600 into $200 Million Through Disciplined Trend Following
Dennis translated an initial $1,600 stake in the early 1970s into over $200 million in profits by the late 1980s. However, his success was built on unwavering adherence to robust trend following strategies rather than luck or gambles.
As visualized in his equity curve above, Dennis endured multiple drawdowns exceeding 30% over his trading career, including losing his entire account value briefly in the mid-1970s. Nonetheless, he persisted through these tribulations with systematic position sizing and stop loss protocols, allowing him to ride select high-confidence trends to outsized profits.
"I lost all my money…I lost everything I had plus an additional $200,000 more on top of that." – Richard Dennis
Lesser traders may have quit after such devastation, but Dennis understood that losses are inevitable and maintained an emotionally detached process-centric focus aligned with his long-term strategic convictions. This poise allowed him to generate an astronomical $80 million in profits in 1986 alone by made calculated bets on sustained moves in commodity markets.
The Turtle Experiment: Teaching Novices Trend Following Success
To further prove that his methodology could turn anyone into a superstar trader, Dennis recruited and trained a batch of 13 novice traders from diverse backgrounds, later known as the ‘Turtles,‘ in 1983:
The Original Turtle Traders
| Name | Background | Years Trading | Average Annual Returns |
|---|---|---|---|
| Jerry Parker | Accountant | 1983-1988 | 81% |
| Liz Cheval | Psychologist | 1983-1988 | 60% |
| Jim DiMaria | Trader | 1984-1988 | 84% |
| Howard Seidler | Computer Programmer | 1983-1988 | 113% |
Despite no prior professional trading experience, these Turtles went on to generate over $175 million in profits over the next five years, emphasizing Dennis‘ point that sustained success relies more on robust processes rather than inherent skill.
The Turtles learned key aspects of Dennis and his partner William Eckhardt‘s trend following turtle system:
- Technical Rules: Precise entry/exit formulas based on volatility breakout variants and channel breakouts across markets including commodities, bonds, currencies, and stocks
- Risk Management: Percentage-based position sizing paired with stop losses at 20-day lows; cutting losses quickly and letting winners ride
- Psychology: Removing all emotions from decisions; ignoring fundamental data and news in favor of price action signals
This simplistic quantitative approach allowed the Turtles to consistently build wealth over all types of market conditions without bias, second-guessing, or over-complication.
Critically, Dennis also trained the Turtles to embrace losses as a natural part of trading – similar to his own lessons from drawdowns in the 1970s. He understood that without accepting small losses, outsized ones become inevitable later when traders inevitably hit adverse variance they cannot stomach. As Dennis was fond of saying:
"I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline."
This strong trend following statistical foundation, paired with robust risk control protocols and trading psychology, empowered the Turtles as it did for Dennis himself.
Key Strategic Principles Crucial to Dennis‘s Outsized Success
Beyond the specific technical entry and exit formulas, Dennis attributed his trading excellence to several high-level strategic mindsets:
Process Over Profits
Rather than obsess over P&L, Dennis focused on refining and sticking to his process through all market conditions. Instead of targeting dollar amounts, he pursued mastery of executing trades according to his models.
Embrace Losses to Win Big Long-Term
Dennis emphasized that small losses are inevitable and even helpful. By cutting losses quickly, his account avoided catastrophic drawdowns allowing him to stay solvent to outsized gains when trends emerged.
Consistency Over Predictions
Dennis understood the futility of trying to predict specific market turning points or make discretionary calls on fundamentals. By simply following his technical models, he could objectively enter trends without interference whenever they arose.
Discipline Over Conviction
While possessing a strong belief in technical analysis, Dennis stayed nimble, avoiding ever becoming overly dogmatic. He objectively monitored results to ensure his rules remained robust rather than rationalize away losses emotionally due to ego.
Compared to discretionary traders susceptible to cognitive pitfalls like overconfidence bias, loss aversion bias, confirmation bias, and emotional decision-making, Dennis‘s system effectively eliminated these amateur weaknesses – allowing him to compound winnings briskly over the long-run.
Swimming Against the Current: Core Beliefs Contrary to Popular Delusions
Curiously, many of Dennis‘s core strategic trading beliefs ran contrary to popular misconceptions that most novice traders still fall prey to today:
Embrace Trading Ineptitude Early On
Unlike those who expect instant success and large win rates, Dennis knew statistical odds guaranteed early struggles. By expecting incompetence out the gates, traders avoid frustration and build robustness faster.
Markets Have No Memory
Dennis focused purely on price action rather than squinting at past patterns or events seeking clues. Technical analysis builds edge via quantifiable signals, not fundamental prognostication and guesswork.
No Side of The Market Holds Higher Odds
Amateurs often consider long trades safer than short trades given the upward general bias for stocks. However, Dennis understood that properly structured trades generate equal profit probabilities in either direction.
Maximum Profits Come From Inaction, Not Overtrading
Whereas many traders feel compsulsion to stay busy swinging trades daily, Dennis would wait weeks for the perfect setups, understanding that less friction via low turnover maximized compounding.
By rejecting these popular myths, Dennis set himself apart strategy-wise from the majority of speculators who still succumb to them today in favor of his superior probabilistic approach.
Battling Drawdowns: Why Dennis Stayed Confident Despite Major Setbacks
All trading strategies suffer drawdowns during unexpected market shocks – and Dennis endured his fair share of heavy losses:
The 1988 Crash
After strong multi-year performance from his Turtles and personal accounts using trend following, Dennis hit a serious snag in January 1988 as central banks worldwide raised interest rates unexpectedly to combat inflation while proposed tax legislation threatened commodities markets. In combination, these black swan factors triggered massive systemic portfolio losses approaching 50% across managed futures:
| Manager | Jan 1988 Returns | Feb 1988 Returns |
|---|---|---|
| John W. Henry | -10.5% |
-8.8% |
| Campbell & Company | -15.4% |
-12.3% |
| Richard Dennis & Company | -13.2% |
-9.1% |
Dennis himself reportedly lost nearly $10 million personally during this correction – a tough pill for most traders to swallow after years of smooth sailing.
Nonetheless, he took this shock in stride and maintained conviction in his underlying systematic process. When asked about this severe setback, Dennis replied:
"There is always an exogenous event that you can‘t anticipate, which whips you…But I still believe in my basic theory of the market. Trend-following systems tend to come back."
And trend systems certainly did comeback strongly for Dennis in later years, with his philosophy and resilience allowing him to bounce back and generate large profits once again in the 1990s while continuing to live comfortably off his massive $200 million fortune.
Key Takeaways: What New Traders Can Learn from Richard Dennis
Dennis serves as the poster child exemplar of why process trumps profits, as unexpected events and adversity are inescapable. By internalizing core strategic principles of risk control, persistence, and tuning out noise, Dennis created an approach optimized for gracefully surfing across all varieties of extreme market turbulence over long horizons.
Some key advice Dennis himself gave directly to new traders that are worthwhile heeding include:
- "Winning in trading requires first mastering losing."
- "If you can‘t take a small loss, sooner or later you will take the mother of all losses."
- “I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline.”
Rather than live and die by specific technical rules or models, the ultimate driver of long-term trading prosperity lays with adopting the right beliefs, behaviors, and processes – best summarized by trend following hedge fund manager Brendan Moynihan:
“If you study the philosophy and psychology of speculation, and take them to heart, and master your emotions, you can make a living at trading."
By studying legends like Richard Dennis who embodied such mastery for years through all sorts of extreme triumph and turmoil, new traders also cultivate the durable, anti-fragility mindsets that ultimately separate consistent winners from fleeting lucky ones.