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Market Wizards - Interviews with Top Traders

Richard Dennis- A Legend Retires

Richard Dennis was called the ‘Prince of the Pit’ because of his performance in the trading pit in Wall street in the 1970's. According to the estimates he started with $400 as his initial capital (which he borrowed from his parents), and eventually turned it to $200 million. 


He firmly believed that trading is a skill that can be taught. However, his friend and fellow trading partner William disagreed. To settle this, he recruited 21 men and 2 women to teach them a simple trend following system. He called them ‘the Turtles’, which is named after the turtle farms in Singapore. He believed they could grow trades just like they grow turtles. This experiment turned out to be a great success for Dennis. The most promising turtle traders were given their own accounts to trade with money ranging from $25000 to $2 million. 5 years later, these traders had earned a profit of $175 million. They proved to be extremely fast in accumulating wealth. 


The most interesting aspect from Richard’s story is that he believes in a pure technical and trend following approach. He believes that patterns tend to reappear in many different types of securities. Also, he can easily trade in a market without knowing its type.


He shares his most dramatic emotional trading experience in which he made a trade and lost about $300. He then added to his mistake by reversing his position and again losing money. To make things worse, he went back to his original position to lose a third time. By the end of the day he had lost $1000 , 1/3rd of his entire capital. This taught him to get out of trade when you experience destabilising losses. One should never try to double up to recover losses. There should be a time gap in between losses and the next trade because a certain amount of loss affects judgement for a period of time.


The key to successful trading is consistency and discipline. Anybody can make a list of rules but what’s important is to teach the confidence to stick to those rules even when things are bad.


Richard Dennis has always been analytical about trading which most of the traders don't do. They don't understand what actually worked for a particular trade.


On the extremes, there are academic types who research before trading and lack the knowledge necessary to develop a good trading system.


He says not to limit the market boundaries. Always expect the unexpected from the markets. There were traders who went short on Soybean at $4 in 1973, thinking it cannot go higher just as sugar price can't go lower than 4 cents. But soybean traded at $12.97 in just a matter of 4 to 5 months.


Dennis also explains how a trader can understand if a major position is wrong. He says, if there is a loss on a trade after a week or two, then the trade is clearly wrong. Also if it is at break even but a significant amount of time has passed, it's wrong too. 


He suggests that the best strategy is to avoid a stock in the middle of a trend.


Richard Dennis is the most successful trader of all time but he decided to quit trading once in 1988 following the year of Black Monday. He made a comeback years later only to close all his operations again after the loss following the dot-com crash in 2000.

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