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The Complete Turtletrader by Michael Covel

  
  Education
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Book summary:

The famous turtle program was the fruit of the debate between Richard Dennis and William Eckhardt, on the issue of whether traders are can be nurtured. Dennis believed it can but Eckhardt thought otherwise. Hence, they decided to make a bet by recruiting people from diverse background and most without experience. The book covered the entire story of the turltes, from the beginning of the program to what happened after the program. Instead of summarizing the process of how the turtles were hired etc, I will only focus on the information and attributes that makes one a good trader which I picked up from the book. In addition, I will introduce the turtle trading method.

What makes a successful trader?

Courageous probability trader

A successful trader thinks in terms of odds and always enjoys playing the game of chance. He or she will experience losses but must be able to hold the nerves and keep trading like they have yet lost. Richard Dennis was $10mil down in a single day but was able to finish off with a $80mil profit for the year. Something that makes “mere mortals lose sleep”. It was said that great traders like Dennis, process information differently from majority of the investors. He does not take conventional wisdom for granted or accept anything at face value. “He knew that traders had a tendency to self-destruct. The battle with self was where he focused his energies.” During the interviews with the potential turtles, one of the abilities he was looking for was “to suspend your belief in reality”.

“Great training alone was not enough to win for the long run. In the end, a persistent drive for winning combined with a healthy dose of courage would be mandatory for Dennis’s students’ long-term survival.”

Eckhardt emphasized that they are not mean reversion traders who believe the market will always return to the mean or fluctuate around the mean. Dennis and co. believe the market trends and often come unexpected, which also means the payout will be very rewarding.

Emotionless and disciplined

Dennis taught the turtles not to think trading in terms of money so they can detach themselves from it and no matter what their account size, they would still be able to make the correct trading decisions.

The turtles were taught to be trend followers where they used a system of rules to tell them the bet size, entry and exit points. Rules “worked best” as they eliminate human judgements which do not work well in the market. That being said, even if rules are followed religiously, traders are not expected to be right all the time and it is crucial that they cut their losses and move on when they are wrong. It is important to make every trade a good trade rather than a profitable trade. As long as good trades are made, profits will come in the long run. (more…)

AN 1873 LETTER ON LUCK VERSUS SKILL

  
  Education
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We often confuse luck with skill, especially in the stock market.  In fact, Michael J. Mauboussin has written a worthy read on separating the two in his newest book The Success Equation:  Untangling Skill and Luck in Business, Sports, and Investing.  But long before the contemporary discussions of luck versus skill, ancient speculators were enthralled by luck’s deceptive ways of making mere mortals feel godlike.  However, that sense of omniscience, just like a string of luck, is fleeting and continues to lure modern speculators into a trap today just like it did Saxon-les-Bains, a man of culture, almost 150 years ago.  In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.

And what was my experience?  This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me.  But this illusion followed me throughout.  I had a sense ofdeserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed.  When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause… (more…)

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