The Complete TurtleTrader by Michael W Covel

Book Review: The Complete TurtleTrader by Michael W Covel

If you have been trading commodities or stocks in the last twenty years, it is likely that you have heard of the “Turtles” and Richard Dennis. The mystique surrounding the nature vs. nurture experiment is uncovered in The Complete TurtleTrader by Michael Covel.

You have to go back to the early 1980’s after the movie Trading Places was released. The premise of the movie dealt with a bet between to two stodgy, “old money,” commodity brokerage firm owners in Chicago. The bet was whether they could pull someone off the streets and turn them into a successful commodity trader. Richard Dennis, a wildly successful trader, made a bet with his partner, William Eckhardt, on whether they could teach their trading methodology to a diverse group of people. So, the famous employment ads were placed and the Turtles were hired to trade

It turned out that trading could be taught and it was not something a person had to be born with. The Turtles made a lot of money for Dennis and at least one has gone on to even eclipse the success of Dennis himself.

As described by Michael Covel in The Complete TurtleTrader, their trading system was not overly complicated. It revolved around a trend following formula, where money management was a key component to their success.

The theory is that you don’t trade when the markets are range-bound, only when they trend. At that point you have to get onboard. If you have ever traded commodities and futures, you certainly know that many breakouts or trends do not last long. That is fully expected under the Turtle system. Most of their trades are small losers and they rely on a few strong trends each year to account for the bulk of their trading profits.

The Turtle Trading system uses 4-week and 11-week breakout rules. They did not take the 4-week trade if the previous trade was a winner. Therefore, they would take the 11-week trigger as a failsafe measure to ensure they caught the trend. The rules stipulated they would not risk any more than 2 percent on any trade and they would add to positions as their trades moved in their favor.

This system has proven to be a winner over time, but it is not for the faint of heart or the undercapitalized. The drawdowns under this system are enormous and it requires a large account so you can stay well diversified and trade a lot of markets.

Richard Dennis decided to pull the plug on the Turtle experiment in 1988 and the Turtles were on their own. So, what would they do with their newfound trading skills?

Much of the remainder of the book focuses on Jerry Parker, who went on to be incredibly successful by forming Chesapeake Capital an amassing a net worth estimated by the author at $770 million to $1.75 billion. He was the first member to capitalize on the Turtle’s newfound fame and was smart enough to do it in the right way.

Many of the other Turtles also went on to manage significant amounts of money, while others simply went back to their normal lives. The experiment was a huge success in the sense that fairly ordinary people could be taught a “system” of trading to make above average returns trading commodities, futures and stocks.

The Complete TurtleTrader is a well-written book backed by a significant amount of research on the subject. The author, Michael Covel, has been covering information on trend following and the Turtles at his website since 1996 – turtletrader.com. He also interviewed a good portion of the Turtles, which helps bring the story to life. This book is a good read not only as a story, but to learn about how many of the successful futures and hedge fund managers trade the markets.