Path of the Turtles. From amateurs to legendary traders. Curtis Face

This is the first book written by a participant in the legendary trading experiment. For the first time, details are presented of what and how the initiator of the experiment, Richard Dennis, taught the newcomers - "Prince of the Pit", as he was dubbed in stock exchange circles.
You will find out in which markets the Turtles traded, what entry and exit tactics they used, what trends they followed, how they calculated risks, what restrictions they had to comply with, and why some Turtles failed while others made millions. And the main thing is why the practical experience of trading in the past or its absence did not play any role in this.
A useful reading for both experienced and novice traders. A fun reading for all the curious.

Dear Readers!
If you are holding this book in your hands, then most likely you want to try your hand at the stock market. Perhaps you first decided to make money in this way, or maybe you have already gone through a series of successes and failures along the way and want to replenish your knowledge using the experience of recognized successful traders.

I came to the stock market at the end of 1992 and immediately rushed to buy and sell some securities. I was living in Israel then, working in an Israeli bank as an investment advisor and thought I was the smartest. Just at the moment when the market grew strongly, my mother-in-law decided to entrust me with a very large amount for her - $ 5,000. “I see that everyone is earning,” she said, “and I want to too. Make me money. " I took this money and at the end of 1993 made about $ 2,000 in profit. And in 1994 the Israeli market fell by about 60-70%. Naturally, I lost everything. It was then that I realized two fundamental things. First, you should never take money from your mother-in-law! Secondly, people who are far from the stock market come just when it is very expensive. In fact, this is a sure signal to sell. I took advantage of this experience when my mother came to me in Moscow in the spring of 2006 and said: “Zhenya, we followed the stock market for a very long time, you tried to persuade us to invest for six years, but we were afraid. Now we have finally made up our minds. Everyone talks about the market and everyone makes money on it. " I realized that history repeats itself. I replied then: "Mom, take the money and do not come to me for at least six months." After closing the door behind her, I called my traders and gave the order to sell everything I could, because my mom came to the market. Indeed, two weeks later serious declines began, and soon the market fell by 30–35%.

Another case demonstrates the importance of thinking outside the box. Successful traders told me: "Read the newspapers and do the opposite." To prove the truth of their words, they showed statistics, and I came to an amazing discovery for myself, which helps me a lot to this day. When the dark headlines start to appear in the newspapers: "The market is down", "Black day in the stock market", "Catastrophe" and the eyes of traders get dark, it means only one thing: it's time to buy. It is necessary to buy when the desperate thought "Lord, why do I need all this, what have I generally forgotten on the stock market?" the inflamed consciousness sharpens especially zealously. Conversely, when the newspapers trumpet every day that the market has gone to heaven and will never return from there, then the time has come for the sale.

Step by step, I make my way in the stock market, learning the most important lessons and using the indicators I have acquired in this way. In turn, I want to wish readers to follow their own path, not trying to keep up with the crowd and not taking the confidential stories of the lucky ones as a guide to action. Only those who do not mix with the crowd, try to think, compare and draw their own conclusions, earn money. Those who are able to think independently, using the experience of professionals, earn money.

Learn, think, earn.

Evgeny Kogan,
head of the investment group AntantaPioglobal.

About the book

• Original name: Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders
• Number of pages: 304
• Publisher: Mann, Ivanov and Ferber
• Editor: M. V. Raider

In his book, Curtis Face will introduce you to the rules of the complete Turtle trading system. There is nothing difficult about them, but knowing these rules alone will not make you successful. You must be able to do them.

The book helps to develop the skills of extraordinary thinking, following your own path. You should not chase the crowd and take other people's stories as a guide to action. Remember: only those who, without mixing with the crowd, try to think independently, compare and draw their own conclusions, earn money. Those who are able to think independently, using the experience of professionals, earn money.

From the book you will learn:

• What markets did the Turtles trade in?
• What tactics did they use to enter and exit trades?
• What trends were followed.
• How the risks were calculated.
• What restrictions were required to comply.
• Why some Turtles were defeated, while others made millions.
• And most importantly - why the practical experience of trading in the past or its absence did not play any role in this

Quotes from the book "The Path of the Turtles: From Amateurs to Legendary Traders"

• There are only a few turning points in life. I experienced two of them when I was nineteen years old: I first saw the Art Deco building that housed the Chicago Board of Trade, and I met Richard Dennis, the legendary futures trader.
• View of the Chicago Stock Exchange - the most famous landscape of the metropolis.
• It may surprise many that Rich thought it possible to train a group of traders in just two weeks. Another thing surprises me: why did he think it would take so long?
• High risk, high reward: for this game you need steel eggs ", - from a conversation with a friend before the start of the Turtle program
• The farmer should worry about rising oil prices as this will drive up the price of fertilizer and fuel for his tractor. Also, the cause of concern may be the possibility of falling prices for the results of his labor (wheat, grain, soybeans), because by selling them, the farmer may be left without profit.
• Markets are groups of traders who interact with each other to sell or buy.
• When collective perceptions change, prices also change. If, for some reason, sellers are unwilling to sell at the current price, demanding higher prices, and buyers are willing to buy at those higher prices, prices rise.
• When we traded with the Turtles, most of the trades were only in the “pits” on the commodity exchanges, where men fought face-to-face, following orders to buy, while other traders shouted and waved their hands for signals.
• Human emotions are both the source of opportunity and the greatest challenge. If you manage them, you can achieve success. Use them at your own risk.
• Scalping is a specific form of trading that was previously available only to traders who worked on the exchange floor. Scalpers try to play on the difference between the bid and ask price (known as the spread)
• Trade on the edge, manage risk, be consistent and don't overcomplicate things. These four principles, which form the basis of any successful trading, are the foundation of the Turtle trading.
• Perhaps the most important element of the Path of the Turtles - and the key difference between successful and unsuccessful traders - is the ability to think long-term in conjunction with the use of a "out-of-the-box" system.
• Good trading does not mean "being right," it means "doing the right thing." If you want to be successful, you must think long term and ignore the results of individual trades.
• Edge trading is what separates professionals from amateurs. Ignore her and you will be eaten by those who do not ignore her.
• Overweight is on the battlefield between sellers and buyers. Your job as a trader is to find the right battlefield and wait to see who wins and who loses.
• A mature understanding of risk and its level is the hallmark of the best traders. They know that if you ignore the risk, it will pay attention to you.
• The risk of crash is the main thing to be wary of. He can come like a thief in the night and deprive you of everything you have acquired.
• Don't spend a lot of time studying the sophisticated models described in the magazines. Learn to master basic models first. It is not the size of the tool that matters, but the ability to use it.
• Do simple things. Simple, time-tested methods, when applied appropriately, beat sophisticated newfangled inventions over and over again.
• Charlatans and villains hide in dark corners, waiting for those who suspect nothing. Don't fall prey to them.
• Trading using weak methods is like juggling while standing in a boat in a storm. You can do that, of course, but it's much easier to juggle while standing on solid ground.
• Trading is not a sprint, it is boxing. The market will beat you, twist your brains and do everything in order to defeat you. But when the bell rings at the end of the twelfth round, you have to stand in the ring to win.
• The market doesn't care about how you feel. He will not take into account your ego and will not support you during difficult times. Therefore, trading is not for everyone. If you are not willing to face the truth about the markets and the truth about your own limitations, fears, and failures, you will not be successful.

Best Forex and Binary Options Brokers

This is the first book written by a participant in the legendary experiment in the field of trading. For the first time, details are presented of what and how the initiator of the experiment, Richard Dennis, taught the newcomers - "Prince of the Pit", as he was dubbed in stock exchange circles.

You will find out in which markets the Turtles traded, what entry and exit tactics they used, what trends they followed, how they calculated risks, what restrictions they had to comply with, and why some Turtles failed while others made millions. And the main thing is why the practical experience of trading in the past or its absence did not play any role in this.

A useful reading for both experienced and novice traders. A fun reading for all the curious.

Curtis Face

Path of the Turtles: From Amateurs to Legendary Traders

From a partner of the Russian edition

Dear Readers!

If you are holding this book in your hands, then most likely you want to try your hand at the stock market. Perhaps you first decided to make money in this way, or maybe you have already gone through a series of successes and failures along the way and want to replenish your knowledge using the experience of recognized successful traders.

I myself have worked as a trader for a long time and also once took my first steps in this field. It is my deep conviction that books such as The Way of the Turtles are a must-read. They help you think outside the box. They truly demonstrate the unique paths of successful traders, woven primarily from their efforts and failures, trial and error, which then gave way to triumph and professionalism.

Introduction

The day I met the Prince of the Pit

There are only a few turning points in life. I experienced two of them when I was nineteen years old: I first saw the Art Deco building that housed the Chicago Board of Trade, and I met Richard Dennis, the legendary futures trader.

View of the Chicago Stock Exchange - the most famous landscape of the metropolis. Crowned by the lone figure of Ceres, the Roman goddess of fertility, the forty-five-story building stands proudly on West Jackson Boulevard, surrounded by its fellow skyscrapers. Inside the building there are “pits” in which traders, standing shoulder to shoulder, sell and buy contracts for grain, meat and currency for millions of dollars - the space is completely filled with exclamations and gestures exchanged between traders. Such a mind-boggling chaos, though well organized, leaves thousands of visitors to the pits in awe. This is the Mecca of traders.

As soon as I entered the Exchange elevator, my palms were sweating. I was only nineteen years old; I was on my way to an interview with Richard Dennis, one of the world's greatest stock traders. Dennis became the hero of traders' lore even before the experiment with the Turtles. He was called the Prince of the Pit - in his early thirties, he knew how to turn several thousand dollars into hundreds of millions.

Only later did I realize how lucky I was then to be in this elevator. I was on my way to interview for a position for which over a thousand applications were sent, but only forty candidates were awarded the opportunity to be interviewed. And only thirteen - less than one in a hundred - were selected, and ten more were offered the program next year.

Long before Donald Trump's The Apprentice hit the screens

and other television competition shows, Dennis created his own competition format. This was due to an argument between him and his good friend - and equally successful trader - William (Bill) Eckhardt about whether great trading abilities are innate or acquired. Dennis argued that he could turn almost anyone into a successful trader; Eckhardt believed that abilities are innate. Dennis was ready to answer for his words with money, and in the end they made a bet.

Chapter 1

Drug risk

People often don't see the difference between a trader and a simple investor. Confusion has arisen due to the fact that many who call themselves investors behave like traders. Let me explain.

Investors buy something for a long period of time, assuming that over a long period of time - many years - the value of their investment will increase. They buy things, something material, really existing. The investor is, for example, Warren Buffett. He doesn't buy stock. He buys what they are - the company itself, with its management team, products, and place in the market. It does not matter to him that on the stock market the price of shares of his companies is considered not quite "correct". In fact, based on his personal vision, he creates his state. He buys companies when he himself values ​​them higher than the stock market, and sells companies when he values ​​them lower than the stock market. In doing so, he makes a lot of money because he does it very well.

Traders don't buy physical objects like companies; they don't buy grain, gold, or silver. They buy stocks; they buy futures contracts; they buy options. They hardly care about the professional level of the management team, the forecasts of oil consumption in the cold northeastern United States, or the global coffee production. Traders are worried about price; in essence, they buy and sell risks.

In his book “Against the Gods. Taming Risk "

Peter Bernstein demonstrated the process of developing markets in which it was possible to transfer risk from one side to the other. In fact, this very opportunity is the reason for the emergence and functioning of financial markets.

Nowadays, companies can buy foreign exchange forward or futures contracts on the markets, which allows them to protect their business from the negative consequences of fluctuations in the prices of their foreign suppliers. Companies can also buy contracts that protect them from potential increases in the price of raw materials such as oil, coal or aluminum.

Trading risks for traders

Traders operate in an environment of risk. There are different types of risks and each of them has its own type of trader. It is advisable for us to combine all minor risks into two main groups: liquidity risks and price risks.

Many traders - perhaps most of them - are short-term traders with what is called liquidity risk. These risks include the inability to buy or sell: either there will be no buyer to whom you could sell your asset, or if you want to buy any asset, you will not be able to find a seller. Most people are familiar with the concept of liquidity in corporate finance, where the term “liquid assets” refers to assets that can be easily and quickly converted into money. Money in a bank account is a fully liquid asset, shares of a company actively traded on the market are a relatively liquid asset, and a piece of land is an illiquid asset.

Suppose you want to buy stock in company XYZ and the last trade price at XYZ was $ 28.50. If you look at the XYZ quotes, you will see two prices: the ask price and the ask price. For example, XYZ quotes are $ 28.50 on demand and $ 28.55 on supply. A quote means that if you want to buy a share, you will have to pay $ 28.55 for it; but if you are going to sell it, you only get 28.50. The difference between these two prices is called the spread. Traders working in the liquidity market are called scalpers or market makers. They make their money from spreads.

A variation of this type of trading is arbitrage, or the exchange of liquidity in one market for liquidity in another. Arbitrage traders can buy crude oil in London and sell crude oil in New York; they can also buy shares of several companies and then sell index futures for the same set of shares.

Price risk is the risk of a significant rise or fall in price. The farmer should worry about rising oil prices as this will drive up the price of fertilizer and fuel for his tractor. Also, the cause of concern may be the possibility of falling prices for the results of his labor (wheat, grain, soybeans), because by selling them, the farmer may be left without profit. Airline executives are worried about a possible rise in oil prices and higher interest rates, because this increase could cause an increase in the cost of financing air travel.

Traders, speculators, scalpers - oh my God ...

Markets are groups of traders who interact with each other to sell or buy. Some traders are short-term scalpers trying to catch the microscopic bid / ask spread over and over again; others - speculators - try to win on price movements; in addition, there are companies seeking to hedge their risks. In each of these categories, there are both experienced traders who know their job well and beginners.

In order to understand how the different types of traders operate, let's examine a few trades.

ACME company

is trying to hedge the risk of rising prices for its UK-based research laboratory. To do this, she buys 10 contracts for the British pound on the Chicago Mercantile Exchange (CME). The ACME is at risk as the British pound rises and laboratory costs are paid in British pounds. A rise in the exchange rate of the pound against the US dollar will drive up the costs of the UK division. Hedging the risk by buying 10 contracts for the British pound will protect the company from the risk of exchange rate appreciation, as gains from such futures contracts will offset the cost if the British pound rallies against the dollar. The ACME buys contracts at $ 1.8452 a pound from Sam, a broker on the floor of Chicago dealing with liquidity risks.

In fact, the deal is being carried out by broker ACME, Man Financial, which has its own employees on the exchange floor. Some of them sit on telephones at the tables surrounding the marketplace; others are traders in the "hole", trading in British pounds, executing trades on behalf of Man Financial. Assistants bring orders from employees involved in telephone conversations to the trader in the "pit", where the trader makes a deal with Sam. For large trades or when the market is moving very quickly, the trader - Man's representative in the floor, can use non-verbal signals, such as hand signs, to accept buy and sell orders from clerks sitting at their phones.

Futures contracts are concluded at a specific rate agreed by the parties and reflected in a document called a contract specification. This document contains data on the quantity, type of product sold and, in some cases, on the quality of this exchange commodity. In the past, the size of a contract was determined by the amount of a standard railroad car: 5,000 bushels of grain, 112,000 pounds of sugar, 1,000 barrels of oil, and so on. For this reason, contracts are sometimes referred to as wagons.

* * *

So, there are three types of traders involved in a trade:

- Hedger: a trader of the ACME Corporation in the hedging department who wants to get rid of the price risk due to changes in the exchange rate and performs hedging operations in the market in order to neutralize this risk;

- Scalper: Sam, a floor broker who trades liquidity risks and makes quick trades with a hedger in the hope of capitalizing on the spread;

- Speculator: Bob who believes that the situation that ACME fears (and insures against) will definitely happen, and bets that the price will fall in a few days or weeks.

Panic in the "pit"

Let's change the scenario a bit to illustrate the mechanisms behind the price change. Imagine that before Sam began to close his short position and buy back the 10 contracts sold in the short position, a broker working for Calyon Financial began buying contracts at the offer price of $ 1.8452. He buys so many contracts that the brokers in the floor get nervous.

While some of them may be long, many may already have 10, 20, or even 100 contracts sold short; this means that if the price rises, they will incur losses. Since Calyon represents the interests of many speculators and hedge funds, its buying activity makes participants worry. “How many more contracts is Calyon going to buy? - Ask the speculators in the hall. - Who is behind the purchase order? Maybe this is just a small part of a big order? "

If you were a floor broker selling 20 contracts short, you would be worried. Suppose Calyon plans to buy between 500 and 1000 contracts. This could push the price up to $ 1.8460 or $ 1.8470. Obviously, you would no longer want to sell contracts at $ 1.8452. Perhaps you would like to sell them at 1.8453 or 1.8455, or perhaps you would decide to exit the trade by buying out contracts at 1.8452 or even with a small loss at 1.8453 or 1.8454, instead of the originally planned price of 1 , $ 8450.

In this case, the spread between the bid price of $ 1.8455 and the bid price of $ 1.8450 widens. It is also possible that both prices could rise and reach $ 1.8452 and $ 1.8455 in bid and ask respectively, so that speculators who sold a short position at $ 1.8452 begin to close positions at the same price.

What changed? Why did prices go up? Price movement is a function of the collective perception of the market situation by sellers and buyers: those who make money on a large number of transactions on small tick changes; those who speculate on small movements during the day; those who speculate on significant movements for weeks or months; and those who hedge their business risks.

Chapter 2

Turtle Thinking Training

To be a good trader, you need to understand how human thinking works. Markets are made up of individuals with their own hopes, fears, and quirks. As a trader, you should look for opportunities that arise from these emotions. Fortunately, smart people - the pioneers of the science of behavioral finance - have been able to determine how a person's emotions influence their decision-making processes. The field of behaviorist finance - highlighted in Robert Schiller's delightful book Irrational Exuberance and further developed in Hersh Shefrin's classic Beyond Greed and Fear - helps traders and investors understand why which markets behave in one way or another.

What makes prices move up and down? (Price movements transform the calm stoic into a sobbing sufferer.) Behavioral finance theory is able to explain the market phenomena of price movements by focusing on cognitive

and psychological factors influencing decisions to buy or sell. This approach has shown that people tend to make systematic errors in the face of uncertainty. Under pressure, people have little understanding of the likelihood of risks or events. What can be more stressful than winning or losing money? Behavioral finance research has shown that when these scenarios unfold, people rarely make very rational decisions. Successful traders understand this and win. They know that other people's mistakes in judgment are their possibilities; they know how these mistakes are expressed in the market. The Turtles knew this.

Emotional salvation

For many years, the theory of economics and finance was based on the theory of rational choice, according to which an individual acts rationally and takes into account all available information in the decision-making process. Traders have always known that this theory is complete nonsense. Successful traders made money by using stereotypes of the irrational behavior of other traders. Academic research has yielded a startling amount of evidence to show that most people do not act rationally. Scientific research is rife with dozens of irrational behaviors and repetitive errors of judgment. Traders are surprised only by the fact that this may surprise someone.

The Way of the Turtles has worked and continues to work because it is based on market movements that occur as a result of the systematic and repetitive irrationality of behavior inherent in the nature of each person.

How often do you experience these emotions while trading?

- Hope: I hope that after the purchase the price of my asset will go up.

- Fear: I can't afford to lose again. I will "sit" on this asset.

Path of the Turtles

Now that we have discussed the trader's train of thought, let's talk about ways to make money trading. Every strategy or trading style has its own ardent fans. Many traders have come to believe in their style so much that they consider all other styles to be unsuitable. I do not think so. Everything that works works. It is foolish to stick to one method while ignoring all the others. The next section of the book focuses on some of the currently most popular trading styles. One of them is trend following.

Trend following

Following the trend, the trader tries to capitalize on significant price fluctuations over the course of several months. Trend-following traders enter trades at historical highs or lows and close them when the market turns in the opposite direction and continues to reverse for several weeks.

Traders spend a lot of time looking for methods to determine the exact start and end times of a trend. However, all effective approaches have much in common from the point of view of practical implementation. Trend-following brings substantial profits, and it has always been this way since trading in futures contracts began; however, for a number of reasons, many players find it difficult to follow this strategy.

First, big trends are rare. This means that trend following strategies are more likely to result in losses than gains. A typical situation is when losing trades make up from 65 to 70 percent of all trades.

Secondly, trend following systems become unprofitable in the event of a trend reversal. Turtles and other traders often used the expression “The trend is your friend until the end when it bends” (loosely translated, it sounds like “The trend is your friend until it turns its back on you”). Reversals at the end of a trend can take a toll on both your account and your mental health. Traders call these periods drawdowns. Drawdowns usually occur after the end of a trend period, but can last for months while the markets remain volatile. During these periods, trend-following strategies start to generate losses.

Drawdowns are usually measured in terms of duration (in days or months) and depth (usually as a percentage). As a general rule, drawdowns for trend-following systems can reach levels of previously earned profits. That is, if we believe that the trend following strategy will bring, as expected, 40 percent per annum, then we can expect a period of losses, during which the size of the trading account may decrease by 30 percent from its maximum.

Trading against the trend

This trading method (reverse trend following) allows you to make money in markets where there are no significant trends. Rather than buying at all-time highs, traders using this method enter short near new highs, expecting that most breakouts from highs will not create trends. In Chapter 6 we will look at the market mechanisms that are the source of profit for trading against the trend - support and resistance.

"The Turtle's Way: From Amateurs to Legendary Traders" is a sensational book, the reason for which (like the most legendary trading method) was the bet of two professional stock traders and their interesting experiment. How useful will the publication be for novice traders and for professionals who already know a lot about trading? For those who are eager for additional details, another author has kindly provided the second part of the book (on the purpose of the experiment and its conclusions).

There was a controversy at the beginning of the road to success

Almost 40 years ago, in the early 80s of the last century, two successful traders, Richard Dennis and William Eckhard, decided to conduct an experiment. Its purpose is to prove or disprove a certain hypothesis. Is it possible for a beginner who follows certain rules for choosing a strategy and behavior to achieve success in trading?

Dennis, Prince of the Pit, as the trading society dubbed him, was confident in the success of the event. Eckhard's opinion was the opposite, he believed that only years of experience and a talent for trading will help a trader achieve a stable income. To find out the result, the debaters recruited a team of 13 people, most of whom knew the Forex market very superficially, and only a few people participated in the trading on a regular basis.

Having taught the group the basics of trading, the authors of the experiment proposed to act in practice. The basic rule is strict adherence to the strategy. When the price, having overcome the boundaries of the price channel, facilitated the entry into the market, the sizes of positions were calculated using a special formula. Both long-term and short-term trading were used, some adventurous students tried to combine types.

Interesting! The "test subjects" worked on the largest trading floors of that period, they had access to the most liquid assets, no restrictions were imposed on the instruments. They were given $ 1 million for use. The partners argued for only $ 1.

Dennis conditionally won the argument, his group was able to achieve significant success, acting exactly according to plan. Reminiscent of the famous fairy tale about the Hare and the Turtle, when a self-confident hare (comparison with Eckhardt's talented traders) decides that he is already at a height and falls asleep under a tree, in the end he loses to the turtle (Dennis's group), which stubbornly, albeit slowly, moved towards the goal.

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To date, the winning is being questioned, since it was not possible to train all participants in trading.

That is, the main idea of ​​the method chosen by Dennis is to act slowly, but confidently and with minimal risks, adapting to changes in the economy.

In order to collect as much information as possible about the experiment, to summarize the results, to subject the information to a certain structuring, it took more than 20 years. At this time, a non-disclosure receipt was taken from all participants in the dispute.

Solving the mystery and creating the book

It was only in 2003 that the world of traders learned in general terms about the tortoise method. And in 2006, one of the group members, Curtis Face, decided to create a book detailing the strategy.

The author, one of the few in the team, was able to achieve, thanks to the chosen trading system, a profitability of 80% annually, for almost 5 years. Only at the initial stage of his practice was he given an amount for use that was twice the size of the deposit of other participants.

A kind of trading tutorial was presented to the world in 2007 under the title "Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders".

The book is more suitable for those who already know how changes occur in the market economy and are familiar with the basic terminology of traders.

What is the tutorial about?

The narration begins with the author's introductory words, he talks about how he met the Prince of Yama, how he managed to achieve stunning success at the age of 19.

In the 13th chapter, a parting word is given to traders, the author explains how to act in a certain situation, and, conversely, how in no case should one act in another.

There is also a bonus chapter that explains the turtle trading rules in detail.

At the end of the tutorial, a terminology dictionary and a list of web sources that readers can visit are provided.

Continuing the path of the turtles

Michael Kovel, the creator of the famous TurtleTrader.com resource dedicated to the Turtle Method, immediately after the publication of Faith's book began preparing to write his own.

The textbook for Russian-speaking traders, the American title of which is "The Complete TurtleTrader: The Legend, the Lessons, the Results", became available only in 2009.

Some readers call the book "Turtles - Traders" the second part of the acclaimed publication on the way of the turtles. This is not so, the works have different authors, although the source is the same and the themes are similar. In "Turtles" the author is more deeply imbued with the question of why during the experiment, some turtles achieved success, while others could not show their own strength.

Kovel carefully studied the life of the participants in the experiment after the results were announced, and was interested in the work of its authors. Not the last place in the work is occupied by the description of the developments and behavior of Curtis Feis.

The trading textbook is conventionally divided into three parts. The first describes life after the experiment, in terms of financial wins, for most of the participants. As it turned out, almost none of them stayed in stock trading, choosing a completely different type of business.

The second part is devoted to a detailed description of the turtle trading rules. The author expresses his own opinion about the trading system, he has successfully analyzed the strategy. Here the reader will find an explanation of the principles of using Donchian Channels and volatility trading, which is the basis of the Turtle's path.

Important! The book is suitable for beginners and experienced traders who can adopt some of the turtles' tricks.

Where can I buy books?

You can buy both books on turtle trading in any of the online stores, at a certain time, the reader will be delivered a package with the publication. The cost of books is from 600 rubles each.

You can download textbooks in electronic form at most resources that provide such services. The format is chosen independently by the buyer, it can be either pdf or fb2. The cost is not much different from the printed version.

Interesting! Some services provide a link to download the book for free. Most often these are sites that specialize in teaching trading. There is an option to read the book online for free.

In the 1980s, it was believed that it was impossible to learn how to trade. This dispute was once started by Richard Dennis and William Eckhardt. Each held his own point of view. To resolve the dispute, they made the difficult decision: to devote some of their time and finances to recruiting and training traders. The results of this experiment were amazing. More than half of traders learned to trade profitably, and one in five became an outstanding trader who made his own fortune.

Almost 20 years after the end of the experiment, the secrets of the success of trained traders began to be revealed. The first mentions of secret methods are found in Jack Schwager's book "New Stock Market Wizards" ...

Prerequisites for creation. Biography

Curtis Face is a successful trader, one of the "turtles". Among the recruited traders, he was distinguished by his impartiality and emotionlessness. It was this factor that allowed at one time to fully study the secret technique of Eckhardt and Dennis. Born in 1964, until the age of 19 he was engaged in programming mathematical algorithms for complex systems. In 1983 he responded to the offer of Richard Dennis in the newspaper. After completing the program with special distinction, Faith saved more than $ 30 million and opened his own company ... Due to illiterate management, the company was declared bankrupt, and Faith lost all his assets. To regain his position and return to trading, he decides to take a job as a financial analyst. After working for several months and having accumulated the starting capital, the trader returns to the market and collects a new fortune.

Faith did not come to writing the work by accident. For almost 20 years, the trading principles of the participants in the experiment were shrouded in secrecy, and only by 2005 the non-disclosure agreement ceased to be effective. By this time, many had forgotten about the experiment, so the event went unnoticed. Curtis has been working on materials for a future publication since 1985. By 2007, he published the first version of the book, which described the basic principles and revealed all the secrets of traders - "turtles". The book caused a great resonance with its provocation. Against the background of the popularity of the work, new experiments were organized, in particular the series "Wall Street Wars".

Plot

The book begins with a description of an experiment by William Eckhardt and Richard Dennis. The author focuses not so much on the "turtles" themselves, but on the criteria for their selection. So, the gurus of stock trading chose people who have no experience in trading, but who have an extraordinary mind, cold mind and knowledge of game theory. The overwhelming majority of those selected had good grades in certificates, some had experience in playing blackjack and card counting, and some of them had traded on the stock exchange before. After completing two weeks of training and a month of practice, each "turtle" got what it deserved. Some were fired, some received small trade sums for their own business, and only Curtis Face received $ 2 million.

“The tables were arranged in pairs, and between each of the six pairs there were partitions almost two meters high. Each of us could choose a table (and hence a neighbor) for an indefinite period of time. Each desk had a telephone with a personal line.

Every week we were given a piece of paper indicating the number of contracts for each market we traded in. For practical purposes, we were told to use a fixed unit size of three contracts for each market. For each asset, for which we traded, it was possible to use no more than 4 units, which corresponded to 12 contracts worth from 50 to 100 thousand dollars.

We could dispose of the accounts at our discretion and could conclude any transactions, provided that they were consistent with the general systematic approach, and we could explain the reasons that prompted us to conduct the transaction. " Curtis Face. Path of the Turtles. From amateurs to legendary traders.

... Then he moves on to analyzing trading systems and discussing the principles of "turtles".

Analysis

This work will be useful for beginners and experienced traders, because unlike many, it considers both the technical and psychological aspects of trading, revealing the importance of each of them ... Despite the seeming simplicity of the principles, only outstanding traders and their students were able to bring them together.

Why are traders in the framework of the project called turtles? This name was coined within the framework of a dispute, since newcomers to trading were going to be taught gradually over a long period of time. Initially, the expectation was that they will be able to trade without loss only after 5 years, moving towards success with snail steps.

Game theory

The use of game theory allows you to get rid of the most important problem of a novice trader - expectations. The Turtles considered each trade to be unprofitable and applied risk calculation systems, with the highest profit / risk ratio they came into play. The rest of the time they performed operations in accordance with the system. Their secret of choosing trades was the normal distribution of probabilities, which could show how likely a particular price movement is.

Game theory also involves not only counting "cards" and determining statistical probabilities, but also an in-depth study of the psychology of the opponent. Based on the psychology of the rival, the "turtle" made assumptions about the breakout points in the trend, etc.

Bankruptcy risk

The math that many people don't take into account. The author gives a simple example of betting on a coin toss. Using an example, he shows the importance of complex money management and risk management. The section logically describes why the risk of 1% of the capital is already considered large. In a series of failures, small numbers add up, which leads to large losses. For example, if a trader exceeds risks by 10% of the capital, then he can go bankrupt in just one bad day. The risk of bankruptcy varies disproportionately to the number of failed transactions relative to the amount managed. Using this term, the author clearly substantiates not only the main features of money and risk management, but also various subtleties. Disadvantages of the pyramidal system, Fibbonacci and Martingale systems. It is unacceptable to use any of them, since the author believes that the ratio of risk to reward is incredibly high.

Trading volumes. Market liquidity

One of the things that were explained to the Turtles by their instructors was the difference in the characteristics of the markets. Depending on the liquidity of the market, there are noticeable differences in its analysis, entry and exit. A large position can greatly displace an illiquid small market, which will affect the effectiveness of trading. At the same time, large markets (such as forex, etc.) are less susceptible to the influence of an individual player. That is why, as Richard Dennis explained, adherents of the fundamental trading style will feel more comfortable in markets that are less susceptible to psychological outbursts of traders.

When studying existing trends, it is necessary to take into account not only the general price dynamics, but also the trading volume. This parameter can greatly help in analyzing market actions and predicting subsequent movements.

Analysis of your own actions

One of the few revolutionary revelations that distinguish the "turtles" from other traders. Curtis Face recommends keeping a trader's diary, in which it is necessary to record all completed transactions and the reasons that prompted the market participant to do one way or another. Even in case of unsuccessful trading, a trader will instill discipline in himself and will be able to further filter out trades made under the influence of emotions from trades in the system.

The author believes that the advent of computers has dulled the sense of analysis of modern traders, making their trading less thoughtful. A diary will help bring thought back into a trading strategy. The acquired analysis skills will help not only in trading, but also in assessing the performance of ready-made systems.

Trader effect

The author calls the effect of the trader simple monkeying. To put it as simply as possible, the behavior of the market changes over time due to the irrational behavior of traders. For example, when a highly profitable, low-risk system begins to be popularized, its effectiveness is sharply reduced due to market behavior. For example, a system of opposing a trend. If everyone starts to follow it, then the trend will have false breakouts, while the number of reversals will decrease. This trader effect reduces liquidity. Arbitrage and scalping (in theory, risk-free trading methods) lose their power with massive use, risks increase, and market liquidity decreases. The result is a decrease in the profit of these trading methods. Over time, the trader's effect forms new patterns of market behavior that make it impossible to use systems based on statistical historical analysis.

Scalping and arbitrage as a complement to system trading

Curtis Face repeatedly mentions a commonplace truth in his book - 90% of traders' transactions are unprofitable. The remaining 10%, with proper management, allows you to cover losses and make a profit. Taking into account the explanation of statistical probabilities and types of trading, the author proposes, in addition to system trading (with a system designed for large timeframes), to use arbitrage, scalping and other trading techniques that imply small profits with small risks.

Expectation theory

To calculate the risks of trading "Turtles" used the theory of mathematical expectation.

Mathematical expectation is the average value of the probability of an event occurring. Measured using the Lebesgue integral over the event of the entire space.

The "turtles" themselves did not study the features of the formula. They had a table in their office that described the average values ​​of the mathematical expectation for certain events.

According to the author, the theory of expectation by itself will not increase the trader's efficiency, but will get rid of false expectations about the market. He explained this with the example of a trader using and not using expectation theory.

A trader who does not know about the theory of expectation will expect and hope for a market reversal. As a result, his losing position will grow until it leads to margin call.

A trader using the theory of expectation will know in advance what the probability of a market reversal on a losing position is, and it will psychologically be easier for him to close it.

The theory of expectation is useful precisely from the point of view of psychology, a person subconsciously believes in the best, therefore, until the last moment, he can expect the market to reverse in the right direction. Ready numbers are opposed to hopes, which psychologically helps to close unprofitable positions or keep profitable ones.

Schrödinger Quantum Theory vs Heisenberg Uncertainty Applied to Markets

Schrödinger's theory of quantum uncertainty implies the impossibility of knowing the outcome of an event before it occurs. There is the Schrödinger's Cat experiment that clearly demonstrates this principle. If you put a cat in a box along with a sealed bottle of deadly poison, then until the box is opened, the person will not know whether the cat is dead or alive. Due to the equal probability that the cat will open the bottle and not, mathematically, it is in superposition, i.e. both alive and dead at the same time.

Uncertainty theory according to Heisenberg - the more accurately one of the characteristics is measured, the less accurately the second can be determined.

To calculate statistical probabilities and form new systems, the author recommends using both principles. Schrödinger's principle of quantum uncertainty makes it possible to reveal the probabilistic relationships of the occurrence of an event. And the Heisenberg uncertainty is presented in addition to the theory of market efficiency. She describes the fact that despite all the efforts in developing the "philosopher's stone" of trading, it is impossible to take into account all the components that affect the formation of prices.

The author recommends using elements from trading strategies that use the definition of mathematical expectation. By separating them from the trading computer system and introducing them into your own algorithm, you can improve the results of mechanical trading.

Risks

Trading in all its forms is a risky business. On the way to success lies a huge number of problems, the occurrence of which can lead to a drain on the deposit or emotional burnout.

Exhaustion caused by a large number of failures. It does not arise from the amount of money lost, but from the number of incorrect predictions. The trader's desire to be right creates additional pressure. In the event of exhaustion, the author recommends temporarily abandoning active trading until the signal to execute a transaction ideally matches the criteria.

Low recoil. When the expectations from trading are not met by the results, the trader begins to doubt - decides to risk more, which, as a rule, leads to worse results.

Price shock. A sudden change in price that is unforeseen and not regulated by the market. Usually, such a risk indicates a crisis in the economy. Curtis Face recommends refraining from trades for the entire period of high unpredictable volatility or using extremely low rates and tight stops.

The risk of exceeding the pain threshold is directly related to wasting. Usually it is associated with excess risks when operating with large amounts. And we are not talking about a percentage, but about specific amounts. Losing 1% of $ 100 for a trader is not the same as losing 1% of $ 1,000,000. When it is exceeded, the trader most often begins to trade and think irrationally, which can lead to fatal consequences. The biggest danger of the risk of exceeding the pain threshold is that when it occurs, there is no reliable means other than temporarily stopping trading and reducing the trade turnover n-fold.

All these risks are increased by leverage (the level of leverage that the broker allows to use). According to the author, the use of moderate leverage cannot affect the quality of trading. But the level of leverage increases the risks, and therefore cannot be recommended in most aggressive strategies.

As an example of the danger of leverage for a trader, the author cites the situation with the Long-Term Capital Management fund, which used an aggressive trading strategy based on the Martingale principles of money management. The fund was highly trusted by investors. A large amount of funds made it possible to effectively get out of the losing streak, but upon reaching a certain level, the fund exceeded the market liquidity. Because of this, the size of their own position worked against the fund. This happened because the rest of the market knew that it could continue to move prices against LTCM positions and that sooner or later the company would have to open positions in the opposite direction. As a result, LTCM lost almost the entire fund, the size of which was estimated at about $ 4.7 billion before the collapse.

This shows that many trading systems that work successfully with a small investment can fail when managing large amounts. Therefore, when using leverage, the author recommends testing strategies using the Sharpe ratio, MAR and others, which allow you to more accurately highlight the ratio of risk to possible reward.

Death of the system

Most of the book consists of an analysis of technical indicators and trading systems. Therefore, the author has inserted an entire section describing the concept of "System death".

System death - a change in the dynamics of the market, due to which a previously profitable system leads to a loss of money

All trading systems work on the basis of historical samples, more or less optimized to predict further price dynamics. System death can be caused by several factors. And sometimes it is difficult to distinguish a completely non-working system from a dying one.

System death can occur:

Due to the trader effect. The more often the system is used, the more pronounced the trader's effect, a large number of participants can strongly push the market, which will provoke a change in the dynamics of the market, and, accordingly, false alarms of signals;
Due to changes in market behavior.

Using different markets

Outcome

Most of the axioms set forth in the book are known, they are not a secret or a revelation for traders.

“One of the Turtle program participants, who was fired during the first year, suspected that some of the information was withheld from the group. He was convinced that Rich did not deliberately disclose certain secrets to us. This trader could not accept the simple fact that his poor performance was due to his own doubts and insecurities that made him unable to follow the rules. "

The author tries to convey to the reader the idea that none of the team possessed any secret knowledge, all that they were taught was ordinary systems analysis and risk management. The main rule of success for "turtles" is continuous adherence to the developed system and the desire to separate emotions from trading.

The book will be of interest to beginners and advanced traders. Beginners will learn from it elements of game theory, mathematical statistics, methods of evaluating systems and other subtleties, collected in one place. For advanced traders, there are answers to many questions related to psychology, stagnation and burnout.

Curtis Faith stood out even among the "turtles", thanks to which he was able to most accurately follow the instructions and perceive the ideas of Richard and William, and over time, present them to modern readers.