The Prince of the Pit

In the world of financial markets trading, Richard Dennis is a legendary figure. Not only did he achieve huge success as a commodities trader, earning the moniker “Prince of the Pit”, he also went on to launch the famous “Turtle Traders Group”.

Dennis’ story is the type of inspirational tale that can still fire the engines of aspiring traders today. He started out as an order runner on the floor of the CME aged just 17. A short while after this, Dennis began trading his own account where he traded “mini-contracts”. After borrowing $1,600 from family members he quickly traded the cash up to $3000 in 1970. By 1973 he had turned $3000 into $100,000. A year later Dennis made $500,000 trading soybeans and by the end of the year became a millionaire.

Breaking the Mould

Dennis’ trading style was at odds with the typical floor trader approach. Instead of scalping for quick profits inside the trading day, he held longer term positions and was known to pyramid his positions to amplify his gains.

The Turtle Traders

His humble beginnings and his wild success on the trading floor led Dennis to truly believe that anyone could be taught to trade successfully. In a strange turn of events, to settle a dispute on the matter with a friend and fellow “Famous Trader” William Eckhardt, Dennis launched a mentoring program. He hand-selected 21 men and two women, arranged them into two groups, and trained each group for just two weeks by showing them a simple trend-following system to be applied in the commodity, currency and bond markets. The system was extremely basic, premised on buying as prices broke out of their range and selling when they moved below their range.

Focus on Risk Management

Along with the basic system, Dennis also coached them about risk and trade management, teaching the “turtles”, as they would be known, how to cut position sizes on losing trades and how to pyramid aggressively during winning trades.

Following their two-week training program, each turtle was given a trading account and was asked to trade live, subject to a maximum of 12 contracts per market. Following the trial period, he then gave successful turtles real accounts with starting balances ranging from $250k to $2million. Five years later, at the completion of the experiment, the group is said to have delivered a combined profit of $175 million. The program has since become a Wall Street legend and the exact system has been detailed in at least two books. Subsequent back-testing of the system shows that after 1986 the performance deteriorated significantly.

Stepping Into The Big Leagues

However, the year of 1986 was a monumental year for Dennis who reportedly pulled $80 million, only just shy of fellow Wall Street legend George Soros who made $100 million. Dennis’ trading style was aggressive and while he often made incredible gains he was also known to suffer sharp losses, at one time being down by $10 million in a single day. Along with “Prince of the Pit”, Dennis was known by another moniker, Dennis the gambler, which he felt was incredibly unfair.

Dennis never saw himself as a gambler. He understood that trading was a game of odds with a lot of probabilities and though he often suffered many (relatively) small losses, his system delivered huge, home-run wins that always catapulted his equity curve to new heights.

Peaks & Troughs

Alongside trading his own funds, Dennis began managing capital for private clients but withdrew from this area in 1988 following heavy client losses during the crash of 1987. During Black Monday, Dennis lost $10 million of client funds and eventually over 1987 – 1988 he lost a total of $50 million. In 1990 Dennis was forced to settle with clients, for around $2.5 million, for failure to follow his own rules.

Despite these losses Dennis’ legend remains intact, having taken $1,600 to around $200 million in 10 years and having taken 23 total beginner traders on to make around $175 million in five years.