Trading rules that creates a spectacular 80% compound interest
A gambling-triggered miracle
In mid-1983, the well-known commodity trader "Richard Dennis" debated with his friend Bill Eckhart about whether a great trader is born or cultivated.
Richard believes that he can teach the ordinary to great traders.
Bill insists that genes and the instinct are destined and unchangeable.
Thus, they recruited and trained traders, providing them with real accounts to operate, trying to find out.
There were, at that time, more than 1,000 applicants, 80 of which were interviewed. In the end, 13 were selected. Richard provided a 500 thousand-to-2 million-USD fund account for most of them. Richard called his trainees "turtles", with whom he conducted the most famous turtle experiment in the trading history.
A group of ordinary trainees involved in the turtle experiment, unexpectedly, made a miraculous 80% compound interest for four consecutive years.
“Trend-following Strategy”: everyone can be a talented trader
Richard has proved by fact that he can turn a novice into a professional, thus, traders can be cultivated.
Everyone, was very curious about Richard's training secrets. What on earth was taught to the trainees, making these novices talents.
Richard, in effect, offered the trainees a simple set of trading rules not magical at all. Donchian channel breakout system, simple but effective, was adopted as the basis to open a position. However, he taught, more than this simple technique, a whole set of relative mechanical strategy, known as “trend-following strategy”, where not much room is left for traders to operate. They can only mechanically follow the system instructions.
This trading system contains the following decisions:
◆ Market-what to trade
◆ Position size-how much to trade
◆ Market entry-when to trade
◆ Stop loss-when to withdraw from a losing position
◆ Market exit-when to withdraw from a winning position
As simple as it sounds, if strictly implemented, it will not leave much flexibility in that the whole process from open to close of a position. Once the strategy is determined, the trader only need to follow step by step. However, the result at 80% compound interest rate proves it effective.
“Trend-following Strategy”: how to operate
The operations in the review experiment are as follows
If the current price exceeds the highest or lowest price of the previous 20 days, the turtle will oprn a position:
If the price exceeds the highest price of the 20 days, then the turtle will buy long a position worthy 1 unit. However, if the price hits a 10-day low, they close the position regardless of profits or losses.
If there is a signal showing that the price has fallen below the lowest price of the last 20 days, the turtle will short a position worthy 1 unit. However, if there is a 10-day highest price, then exit the market as before.
Isn't that easy? The hard part is to strictly follow rather than understand it, especially when waiting for the system to give instructions to close positions. Waiting for the signal always come with vanishing of 20% or even 40% of profits.
traders are tended to exit early. Only self-disciplined traders can stick to their positions until the exit signal is triggered and profits are realized. Successful traders are characteristic of ability to adhere to the principle.
“Trend-following Strategy”: inspire the trading
Why do we have to rely on the mechanical “Trend-following Strategy”?
A feasible strategy provides the solution for every necessary decision in the trading. The entire trading program can be automatically performed.
Once you start to follow a well-functioning strategy, every trading executed will be consistent, even though there may be internal struggles in human nature. Confidence, consistency, and disciplines guaranteed by a thoroughly tested trading strategy are key to the success for the majority of competent traders.
If you depend on your own judgment in the trading, you may find that you step back when you should be brave while being bold when you are supposed to be cautious. You always buy high and sell low, thereby being tortured by the market.
Let's take a look at the example of bitcoin system trading. It is known by all that bitcoin price keeps skydiving after it hits 16,000 in 2018. In 2019, btc prices struggled around 3,700 for a long time. Let's look at a 4-hour candlestick chart. Similar to the turtle rules, Bolinger bands breakout is an entry point. When the price breaks through the upper or lower band, it indicates to open a long or short position. When the price exceeds the axis after entry, it is time to close the position. This is also a very simple but effective strategy.
It can be seen from the above figure that since May 2, 2019, the price exceeded the upper band, the system showed a signal to buy more at 5,516 and to exit at 5,673 till May 6. The profit during this period of time was 157 per contract.
On May 7th, the price broke through the upper band, showing a signal to buy more, at the price of 5,941. The exit signal was given at 7,789 until May 16, and the profit in this interval was 1,957.
with the strategy above, traders no longer need to predict the market trend. In the case above, you can get tremendous profits in the rising trend from May to June 2019. It is undeniable that this system, from January to March, would also bring you small but frequent losses.
The words to new contract traders
As a novice for contract trading, if you want to minimize immature judgments, then change your thinking and start with “Trend-following Strategy”. You have to first determine the market type, and then spot the trading system suitable for you and the market. Experience the fun in trading by following the strategy.
Lots of people attempt to label themselves as "professional". Don't yield to the advice of these boastful experts. The best suggestions come from those who don't sell advice, but those who make money on trading.
It is not impossible to be cultivated as a good trader (and even an outstanding one), but achievable with hard work and skepticism. Trading is an endless journey. Those who continue to be a success will never reach their destination. However, they will learn to have fun along the way.