Successful Traders - Richard F. Dennis

Successful Traders – Richard F. Dennis

Today we want to share the success story of a famous trader in the world of financial exchanges, already mentioned in one of our previous posts - Richard F. Dennis.

Richard is a commodities speculator once known as the “Prince of the Pit” ("pit" means a specially arranged place where a group of traders works on an exchange floor). He was born in Chicago in January 1949. In the early 1970s, he borrowed $1,600 and reportedly earned $350 million in about six years. When a futures trading fund under his management suffered significant losses during the 1987 stock market crash, he stepped away from trading for several years. He was active in Democratic and libertarian political causes.

Dennis became a trader at the Chicago Mercantile Exchange at the age of 17. A few years later, he began trading for his own account at the MidAmerica Commodity Exchange, an entry-level floor where “mini” contracts were traded. To bypass a rule requiring traders to be at least twenty-one years old, he hired his father, who traded in the pit on his behalf.

Dennis earned a bachelor's degree in philosophy from DePaul University, then accepted a scholarship for postgraduate studies in philosophy at Tulane University, but later changed his mind and returned to trading. He borrowed $1,600 from his family; after spending $1,200 on a seat at the MidAmerica commodities exchange, he had $400 left in trading capital. In 1970, his trading grew that amount to $3,000, which he described as “compared with $400 ... a real stake,” and by 1973 his capital was over $100,000. He made a $500,000 profit trading soybeans in 1974 and, by the end of that year, he was a millionaire at just 26 years old!

Dennis benefited as he successively bought new weekly and monthly highs in the inflationary trending markets of the 1970s, an era of repeated crop failures and the “Great Russian grain robbery” of 1972, when agents of the Soviet Union secretly purchased 30% of the U.S. wheat crop within a few weeks. This set the stage for strong and sustained price trends in both directions over the next several years, a period when “anyone with a simple trend-following method and a dartboard could make a million dollars.”

Unlike the vast majority of floor traders, who quickly reduced trades during a trading day, Dennis held positions for longer periods, avoiding short-term fluctuations. Dennis often pyramided his positions. In the late 1970s, he bought a full membership seat at the more expensive Chicago Board of Trade and opened an office to trade multiple markets.

Dennis believed that successful trading could be taught. To settle a debate with William Eckhardt, a friend and fellow trader, Dennis recruited and trained 21 men and two women in two groups, one in December 1983 and the other in December 1984. Dennis trained this group, known as the Turtles, for only two weeks on a simple trend-following system, trading a wide range of commodities, currencies, and bond markets, buying when prices rose above their recent range and selling when they fell below their recent range. They were taught to reduce position size during losing periods and to pyramid aggressively up to one-third or one-half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system generates losses when the market is range-bound, often for months at a time, and profits during large market moves.

In January 1984, after the two-week training period ended, Dennis gave each Turtle a trading account and had them trade the systems he had taught them. During this one-month trading period, they were allowed to trade a maximum of 12 contracts per market. After the trial period ended, he allocated several of those who had traded the system successfully during the one-month process accounts ranging from $250,000 to $2 million of his own money.

When his experiment ended five years later, the Turtles reportedly made a total profit of $175 million. The exact system Dennis taught the Turtles was published in at least two books and can be back-tested to verify its performance in recent years.

The result of such a back-test shows a sharp decline in performance after 1986 and even weak performance from 1996 to 2009. Nevertheless, a number of Turtles (for example, 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 successful careers as commodity trading managers, using techniques similar to, but not identical with, the Turtle system.

The Turtles' story is also described in one of the books promoted by Trading.md - "100% Forex, Professional Strategies and Techniques".

Check our book list

Dennis managed capital funds for others in the markets for a while, but withdrew from this management in the spring of 1988 after his clients suffered major losses. In the Black Monday market crash of 1987, he reportedly lost $10 million, with total losses of $50 million in 1987-1988. In 1990, his firm settled investor complaints regarding his failure.

Dennis published articles in The New York Times, The Wall Street Journal, and Chicago Tribune. He is president of Dennis Trading Group Inc. and vice president of C&D Commodities, former chairman of the advisory board of the Drug Policy Alliance, a board member of the Cato Institute, and a trustee of the Reason Foundation.

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Risk warning: This article is for information and education only, reflects the situation as of its publication date and does not constitute investment advice, an offer or a recommendation to buy or sell any financial instrument. Trading leveraged instruments (Forex, CFDs) and crypto-assets carries a high risk of losing your capital. Past performance does not guarantee future results. Before investing, assess your objectives and risk tolerance and, if needed, consult a licensed adviser. Details: Disclaimer & Risk Warning.