The Turtles were trained to be trend-following traders. In a nutshell, that meant that they needed a “trend” to make money. Trend followers always wait for a market to move; then they follow it. Capturing the majority of a trend, up or down, for profit is the goal.
Richard Dennis and his turtles
Dennis believed that successful trading could be taught. To settle a debate on that point with William Eckhardt, a friend and fellow trader, Dennis recruited and trained 21 men and two women, in two groups, one from December 1983, and the other from December 1984. Dennis trained this group, known as Turtles, for only two weeks about a simple trend-following system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range. They were taught to cut position size during losing periods and to pyramid aggressively — up to a third or a half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves.
In January 1984, after the two-week training period was ended, Dennis gave each of the Turtles a trading account and had them trade the systems they had been taught . During this one-month trading period, they were allowed to trade a maximum of 12 contracts per market. After the trial-period ended, he gave the few of them who had successfully traded the system during the one-month trial, accounts ranging from $250,000 to $2 million of his own money to manage.
When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million. The exact system taught to the Turtles by Dennis has been published in at least two books and can be back-tested to check its performance in recent years. The result of such back-test shows a drastic drop in performance after 1986, and even a flat performance from 1996 to 2009. However, a number of turtles (e.g., Jerry Parker of Chesapeake Capital, Liz Cheval of EMC, Paul Rabar of Rabar Market Research, Tom Shanks of Hawksbill Capital Management, Howard Seidler of Saxon Investment Corporation, Jim DiMaria of JPD Enterprises, Inc.) began and continued careers as successful commodity trading managers, using techniques similar, but not identical, to the Turtle System.
