Let me tell you a bit about Richard Dennis…
If you’ve not heard of him before Dennis was one of the guys behind the infamous ‘Turtle Traders’ experiment.
He had a bet with his partner William Eckhardt that traders were made, not born, and he set about proving his theory right.
(The film Trading Places was loosely based on the story of this bet).
His group of inexperienced trading students went on to make millions, some of them anyway, and that’s the interesting thing…
Even though the students were each given exactly the same instructions, from a man who was known to have personally extracted millions from the markets, there was actually a wide spread of results.
Some of them actually lost money and dropped out of the training yet some went on to become ‘big names’ in the world of trading their own right.
So how could this be?
Well, the thing is, Dennis’ approach to trading was very much probability based.
Rather than looking for ‘perfect’ entry points in the market, he was all about being long when the market was moving up, and being short when the market was moving down.
It was his ability to participate in the bigger move that was of most importance to him. He didn’t lose sleep over the timing of his entry.
It meant his system made it impossible to miss out on big moves in the commodity markets – he was always poised to catch the breakout – but it also meant his traders had to weather the false breakouts, the strings of small losses, and the periods of uncertainty that came with the territory.
So why did some Turtle Traders make millions yet others scuttled away with their tails between their legs?
Logically, it should have been no problem. The evidence was there in black and white: The winning periods outweighed the occasional losing spells many time over… to the tune of millions of dollars.
But we all know how seductive it is to want to be ‘right’ all the time, don’t we?
Here’s an idea of how good Dennis’ approach was: in 1986 he personally made $80 million dollars from trading!
But it was no straight rise to the top. He took some eye-watering losses along the way but he always had complete confidence in his strategy. He just kept pulling the handle on his trades.
Now how many traders would clamour for the chance to make $80 million?
All of us, right?
But how many would be willing suffer the comparably-sized doses of pain along the way, and still keep plugging away with the trades?
Not so many I reckon.
I’d wager most would drop out at the first round of losing trades.
But this is what it takes to find consistency!
Dennis’ strategy might have gone through a six-month lean period (i.e. it might actually have LOST money) but he’d always be there, ready and waiting, when the conditions that favoured his approach returned.
That’s the mark of a professional.
And that’s why his quote made such a big impression on me:
“I always say you could publish rules in a newspaper and no one would follow them. The key is consistency and discipline” – Richard Dennis
He’d actually been asked by a reporter why he was risking giving all his ‘secrets’ away. Wasn’t he risking everyone jumping on board and ruining its effectiveness?
But his answer says it all.
Many might set out with best intentions but almost no one would end up following his rules in the end.
Most wouldn’t have the stomach to make the money. Their ego would not allow them to take the hits that came as part of the package.
Unfortunately, as Dennis suggests, probability-based trading is still too big a pill to swallow for many, despite it being the medicine we seek!
There really are no secret codes or special combinations of indicators that produce consistent results.
It all comes down to probability and discipline.
In fact, you could say any ‘secrets’ are actually hidden in plain sight, just like Richard Dennis’ newspaper trading rules.