Richard Dennis: How He Made $200 Million Trading Commodities - Analyzing Alpha (2024)

How would you like to turn $400 into $200 million with your trades? That’s precisely the magic Richard Dennis performed, using a straightforward trading system he later shared with others. The man is a trading titan, a rags-to-riches story who forged a successful band of traders known as the Turtles.

In this article, we’ll delve into the thrilling career of market wizard Richard Dennis and the strategies that catapulted him to success. You’ll also discover how to harness his system for your own trading endeavors.

So don’t let this golden opportunity slip away! Learn from one of the most influential traders in history and find out how you can mirror Dennis’ strategies for lasting wealth.

The Humble Beginnings of a Trading Legend

Born and raised in Chicago, Richard Dennis sprang from humble, working-class roots. His thrilling journey into the world of trading began at the ripe age of 17- talk about an early start!

Dennis’s first exhilarating dip into the commodity trading pool occurred at the Chicago Mercantile Exchange. As an order runner, he started from the ground up, handling “mini” contracts. But despite a rule that traders had to be 21, Dennis ingeniously discovered a loophole. His secret? He worked as a runner but hired his father, who traded in his place.

Of course, Dennis had to take a break from trading to pursue an education. He dove headfirst into philosophy, earning a bachelor’s degree from DePaul University.

But the magnetic pull of the financial world was too strong to ignore- Dennis couldn’t resist the allure of the trading floor for much longer. So, the ink barely dry on his degree, he plunged back into the trading world to make a name for himself.

Career Highlights: How He Became the Prince of the Pit

Richard Dennis, the legendary “Prince of the Pit,” ignited his trading career with a humble $1,600 loan from his family. Of course, after using $1,200 to buy himself a spot at the MidAmerica Commodity Exchange, he was left with just $400 to his name.But believe it or not, this small sum laid the foundation for his future empire.

You see, Dennis’ portfolio was a vibrant tapestry of commodities – from soybeans to gold, silver, sugar, and even currencies.But how did he spin gold from these diverse threads?

Dennis believed in the power of trend-following, risk management, and emotional detachment in trading. And by sticking to these principles, he found remarkable success.

Richard Dennis’ Performance History

But let’s let the numbers speak for themselves! In under a decade, Richard Dennis transformed his initial $400 into a jaw-dropping $200 million.

As a result of his impressive track record, he quickly reached superstar status: industry professionals were comparing him to legends like the billionaire investment manager George Soros.

While Dennis’ success didn’t last forever (he suffered a downfall between 1987-1988, costing him half of his assets),sources say that his net worth is still in the millions thanks to his insane track record.

The Turtle Trading System and How It Works

But that’s not even the best part! Dennis’ most monumental achievement, which revolutionized the trading world forever, is the awe-inspiring Turtle Trading Experiment.

So what is the Turtle Trading Experiment, and why is it so significant?

Let’s journey back in time to a bet that took place between Richard Dennis and fellow trader Bill Eckhardt. You see, Eckhardt firmly believed that successful trading was a natural talent, a gift you were either born with or not. Dennis disagreed; he thought anyone could make millions trading if they followed a specific set of trading rules.

To prove his theory, Dennis came up with an experiment. He would teach his trading system to a diverse group of individuals whom he affectionately dubbed the ‘Turtles.’ If these Turtles could become successful traders using his methods, he’d win the bet and prove that good trading can indeed be taught.

So in 1983 and 1984, Dennis put out an ad to assemble a team for his daring experiment. He wasn’t hunting for financial experts or math whizzes. No, he looked for everyday people with diverse backgrounds. The outcome? A motley crew of 14 individuals who were ready to start trading.

The Rules of the Turtle Trading System

First, Richard Dennis asked his Turtle traders to embrace the scientific method in their trading approach. This process involved:

• Pinpointing the question
• Gathering information
• Crafting a hypothesis
• Devising an experiment to put the hypothesis to the test
• Experimenting and gathering data
• Analyzing the experiment’s data
• Interpreting the data

The Turtles were instructed that if the results validated their hypothesis, they could adopt the theory for trading. If not, it was back to the drawing board to devise a new, more effective system.

This systematic, data-driven approach was the cornerstone of Dennis’ trading philosophy. It removed emotions from the equation, forcing the Turtle traders to make decisions based solely on facts.

The traders also were trained to ask these five questions before entering a position:

1. What is the current state of the market?
2. What is the market volatility?
3. What is the asset being traded?
4. What is the trading system?
5. What is the trader’s risk aversion?

Answering these questions provided the turtles with concrete guidance on which trades to make and their position sizes.

And last but not least, Dennis taught the Turtle traders two trend-following systems that helped them determine when to buy or sell:

1. System 1- The more aggressive of the two systems, you’d enter a trade when the current price surges past the highest point of the last 20 days. But for a short position, you’d buy when the current price is lower than the last 20 days. You’d sell during a ten-day low for long positions, or a ten-day high for short positions.
2. System 2- The longer, less-risky approach of the two trading systems, you’d enter a long position when the current price went above the past 55 days. But for a short position, you’d enter when the price shrunk below the last 55 days. You’d sell when the price reached a 20-day low for long positions, or a 20-day high for short positions.

The Results of the Turtle Trading Experiment

So how did the experiment end? Was Richard Dennis right, or was it Bill Eckhardt?

Well, let’s look at the numbers! From 1984 to 1988, the Turtle traders raked in an average annual return of over 80%. That’s a whopping $175 million!Check out the table below, which showcases their excellent performance:

Kagels Trading

Needless to say, Dennis had won the bet: anyone could be a successful trader as long as they followed the Turtle Trading rules.

So, what’s your take? Could you be the next Turtle, turning a small sum into millions? The answer is yes, and I’m here to help you learn how!

How to Apply the Turtle Trading System to Your Trades

While a lot has changed since Dennis’ hay day, let’s talk about how you can use his trading strategy to find success in today’s market!

Follow Current Market Trends

Historical data? It’s a treasure trove of insights, patterns, and trends that can guide our market predictions. But here’s the kicker: it’s not a crystal ball. Past market swings don’t always forecast future ones. So, while they’re worth considering, they can’t be our only compass.

So, what should we focus on instead? The trend-following strategy of Richard Dennis. You see, savvy traders harness the power of trend-following systems, riding the wave of the market until signs of a shift emerge. These systems can be instrumental in taking advantage of market movements.

Essentially, Dennis tells us to buy when prices go up and sell when they go down. Sounds easy, right? But it’s not that simple- the real test is maintaining the discipline to stick to this trading strategy, especially when the market is in a testy mood.

Despite Dennisrevealing in Jack Schwager’s “Market Wizards”that he doubts his trading systems would perform well today, the core principles of sticking to strong trading systems and mastering your emotions are as potent as ever.

Choose the Right Position Size

In the world of trading, size matters! But as your order sizes increase, so do the challenges that come with it. Think of it like steering a colossal ship through a tight canal. The bigger the boat, the trickier the journey. So, how does our hero, Dennis, tackle this beast?

With a secret weapon called diversification! You see, he would never gamble on one horse. Instead, he spreads his bets across multiple commodities instead of taking an overly large position on any one trade. Think of it as a farmer sowing different seeds in his field. If one crop fails, the others can still grow and eventually be sold at the farmer’s market.

But it doesn’t stop there: Dennis also deployed unique strategies tailored to each trade. Of course, he wouldn’t use a system without first applying the scientific method to ensure it’s foolproof. This blend of flexibility and unwavering respect for data allowed him to bob and weave with changing market conditions and rake in the dough.

Know When to Cut Your Losses

In the trading universe, having a well-defined exit strategy and risk management plan isn’t just beneficial—it’s absolutely crucial. Why? Because the market is fickle! And when a trade begins to underperform, you need a game plan to mitigate loss.

So how do you know when to buy and when to talk away? Richard Dennis makes it easy! As he explained to his turtles, setting stop points to pre-determine when to cut losses is crucial. It helps you to keep your emotions in check and avoid staying in a position that’ll only end in heartbreak.

You can also use the trading systems from the experiment to help you navigate exit points.If you have an appetite for risk, developing a plan similar to his first trading system might just be your perfect match.It’s tailor-made for those who love the adrenaline rush of trading and are ready to get aggressive in the pursuit of instant profits.

But if you prefer a safer route? The second system could be your ideal fit. It’s crafted for those who favor long-haul trades:less of a white-knuckle ride and more of a steady ascent.

Find Common Behavior Among Markets

Imagine this: your trading strategy works wonders in the commodities market. Significant profits are flooding in, and you’re feeling unstoppable. But then, you venture into the crypto market with the same strategy, and suddenly, you’re sinking. The once unbeatable system now seems shaky.

Here’s where the secret weapon of successful traders comes into play: spotting patterns across different markets. If your strategy can be applied to various asset types, you’ve hit the jackpot! It can save you time and even boost your confidence, resulting in more profitable trading.

But if your trading system fails in other markets? It’s a wake-up call that it might not be as bulletproof as you thought. Hence, the reason why traders like Jaffray Woodriff, market wizard Marsten Parker, and hedge fund manager Tom Bassohave multiple trading systems up their sleeves.

Master the Art of Detachment

Richard Dennis knows that losing streaks are par for the course in trading. When the chips were down, he wouldn’t stubbornly cling to his positions. Instead, he scaled down, reevaluated, and even stepped away from the trading floor if needed. This isn’t a sign of defeat but a calculated step back to regroup and recalibrate his strategies.

Because, let’s be honest, we’re all human. Emotions often fog our judgment, pushing us to make rash trading decisions. In the trading arena, this can be a recipe for disaster, leading to an overabundance of trades to recoup losses or exiting a trade too late.

This is precisely why Dennis champions a systematic approach. You see, the brilliance of this method lies in its unwavering objectivity. It strips away the emotional aspect ofdecision-making.

This way, you can make logic-driven decisions regardless of whether you’re high on a winning streak or feeling the sting of a loss.

Beware of Market Behavior Myths

Some traders believe that figuring out the logic behind stock market fluctuations will unlock wealth. Richard Dennis, however, would say, “Not so fast!”

Markets are unpredictable, often swayed by raw instincts like greed, fear, and the notorious FOMO (Fear Of Missing Out). They move to their own beat, often leaving traders confused (and sometimes at a loss).

Here’s where the trend-following strategy comes into play. Amidst stock market madness, the trend-following approach is a beacon, guiding traders through the highs and lows. It’s a straightforward yet powerful concept: ride the trend, flow with the current, and let the market tides sweep you towards profits.

You see, this strategy doesn’t try to foresee the future or decode the market’s behavior. That would be a waste of valuable time! Instead, it zooms in on present market trends, harnessing the momentum until a reversal signal pops up.

The Richard Dennis Effect on Modern Trading

Richard Dennis, a name synonymous with unconventional trading methods, changed the finance industry forever.

You see, Dennis broke the long-held belief that you need a fancy degree or lots of money to be successful in trading. His Turtle Trading experiment proved that trading is a teachable skill, like driving a car or playing guitar. This game-changing news was a slap in the face to those who thought trading was just an exclusive club for Wall Street’s biggest names.

But the legacy doesn’t end there: a handful of the Turtles from his experiment also found lasting success in the financial world.Take Jerry Parker, for example, a Turtle trader with zero experience before meeting Dennis. He later founded Chesapeake Capital, a thriving investment management firm built on systematic principles.

And that’s not all!Justrecently, Jerry Parker launched a trend-following ETFdesigned for retail managers; this provides an opportunity for your money to be managed by Parker himself.Talk about an influential domino effect that ripples through decades!

While Dennis’ exact trading systems may not be as effective today as they were then, nobody can deny that herevolutionizedan entire industry. Thanks to his experiment, the trading world is much less intimidating to newbies, allowing them to carve their path to financial freedom.

Conclusion

In conclusion, the Turtle Trading System, created by commodities expert Richard Dennis, is a strategic method that profits from market trends. With its track record of generating substantial wealth, this system could be a game-changing addition to your trading strategy.

By taking advantage of Dennis’ wisdom, you could amass wealth that lasts through generations. So, why not take that step toward joining the ranks of prosperous Turtle Traders today?

Frequently Asked Questions

Now let’s tackle some frequently asked questions traders have about Richard Dennis and the Turtle Trading Experiment!