Saturday, February 23, 2013

A brief history lesson on self-sabotage

In early 1984, the first class of Turtle students selected by Richard Dennis and William Eckhardt were quickly subjected the psychological issues of following a trend. They had returned to Chicago at the beginning of the year, having completed their two weeks of training, eager to begin trading.

Shortly after, the February contract of heating oil broke out and gave a long signal, and entries were made in accordance with the system rules they were following. This quickly developed into a major trend, allowing big profits to be made by the Turtles. Or did it...

It soon became apparent that, despite all the students having the same training only a few weeks before, only one student (Curtis Faith) was able to follow the rules. All the others had not put on a full position, or had tried to guess the top of the move, or had exited their position after a minor pullback within the context of the uptrend had started.

That first trade has given those traders (including some who subsequently became hugely successful fund managers) a stark message about the psychology involved in using a rules based system.

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