In my last video in this miniseries in seven parts,
I talked about the legendary predictor of the 1987 market crash - Paul Tudor Jones.
Today, I will focus on Richard Dennis instead, a man who once was called the "prince of the pit", because of his performance in the
trading pits of Wall Street in the 1970s.
His starting capital of $400, which he borrowed from his parents by the way, was eventually turned into
$200 million according to some estimates.
Without giving away any specific numbers, and without sweet-talking his son to much,
Richer Dennis' father famously said this regarding the amassed fortunes of his son:
"Let's just say that Richie ran that 400 bucks up really good"
Dennis was a firm believer that trading was a skill that could be taught. His friend and fellow trading partner William Eckert disagreed.
To settle this dispute,
Dennis recruited 21 men and 2 women to which he taught the basics of a simple trend-following system.
He called them the "Turtles", after recalling turtle farms that he had visited in Singapore.
He was sure that he could grow traders just like they were able to grow turtles.
The experiment turned out to be a great success for Richard Dennis.
The most promising Turtle Traders were given their own accounts to trade, with money in the ranges of
$250,000 to $2,000,000.
Five years later, his Turtles had earned an aggregated profit of $175 million.
That doesn't seem very Turtleish to me.
I would rather refer to these guys as the "Cheetahs" than the "Turtles" because of how fast they were able to accumulate wealth.
Anyways, the most interesting trading takeaway that Richard Dennis presents while he's interviewed by Jack D Schwager for the book Market Wizards
is that he believes in a pure technical and trend-following approach.
He believes that patterns reappear in many different types of securities, and
that he therefore can trade without even knowing which type of market that he's currently acting on.
"In our research, if a system doesn't work for both bonds and beans, we don't care about it"
When building his trading systems, using historical data as a basis for his strategies,
Richard Dennis will never allow a certain pattern to tell him how far something will go.
For instance, a cup and handle formation might mean that the market now has
53 percent chance of going up and
47 percent chance of going down, and therefore Richard Dennis would put on one of his long position trades in that situation.
What he would never do is to then let historical data decide on how long he can stay in that position.
Let's say that historical data shows that after a cup and handle break out,
the position has never gone above 10% without falling back again.
One could then draw the
conclusion that it's not useful to stay long for more than 10% maximum, and to take profits at such a point.
But not Richard Dennis.
He would follow the trend as long as there's one to follow.
He uses past data to indicate directions only, never to set boundaries on market behavior.
A disclaimer is probably in place here. Richard Dennis is one of the most successful traders of all time,
but he did decide to close his operations once back in
1988, following the year of the Black Monday market meltdown.
He did a comeback years later, only to close all his operations again after losses following the dot-com market crash.
This could suggest that his trading approach is primarily useful in bull markets, and
that he's vulnerable to sharp reversals of such positive trends.
The next time we will look at Ed Seykota, one of the pioneers within computerized trading systems. Stay tuned for that!