In 1983, Richard Dennis and William Eckhardt trained 23 complete beginners in a set of systematic trend following rules. Those students, the TurtleTraders, went on to generate over $100 million in profits. The rules they were taught are documented on this page.

These are not interpretations or approximations. They are the actual principles, frameworks, and trading guidelines that formed the foundation of the TurtleTrader system — one of the most successful and well-documented trend following experiments in financial history. Understanding them requires understanding not just the mechanics but the philosophy that underpinned every decision Dennis and Eckhardt made in designing the system.

The Foundation: Scientific Method Over Intuition

Dennis and Eckhardt’s two weeks of training were heavy with the scientific method — the structural foundation of their trading style and the foundation on which they had based their arguments in high school. It was the same foundation relied upon by Hume and Locke. Simply put, the scientific method is a set of techniques for investigating phenomena and acquiring new knowledge, as well as for correcting and integrating previous knowledge. It is based on observable, empirical, measurable evidence, and subject to laws of reasoning. It involves seven steps:

1. Define the question.
2. Gather information and resources.
3. Form hypothesis.
4. Perform experiment and collect data.
5. Analyze data.
6. Interpret data and draw conclusions that serve as a starting point for new hypotheses.
7. Publish results.

This is not the type of discussion you will hear on CNBC or have with your local broker when he calls with the daily hot tip. Such pragmatic thinking lacks the sizzle and punch of get-rich-quick advice. Dennis and Eckhardt were adamant that their students consider themselves scientists first and traders second — a testament to their belief in doing the “right thing.” The empiricist Dennis knew that plugging along without a solid philosophical foundation was perilous. He never wanted his research to be just numbers bouncing around in a computer. There had to be a theory, and then the numbers could be used to confirm it. He said, “I think you need the conceptual apparatus to be the first thing you start with and the last thing you look at.”

This thinking put Dennis way ahead of his time. Years later, the academic Daniel Kahneman would win a Nobel Prize for “prospect theory” (behavioral finance), a fancy name for what Dennis was doing for a living and teaching his TurtleTraders. Avoiding the psychological voltage that routinely sank so many other traders was mandatory. The techniques that Dennis and Eckhardt taught the TurtleTraders were different from Dennis’s seasonal spread techniques from his early floor days. The TurtleTraders were trained to be trend following traders. In a nutshell, that meant they needed a “trend” to make money. Trend followers always wait for a market to move, then they follow it. Capturing the majority of a trend, up or down, for profit is the goal.

The TurtleTraders were trained this way because by 1983, Dennis knew the things that worked best were rules: “The majority of the other things that didn’t work were judgments. It seemed that the better part of the whole thing was rules. You can’t wake up in the morning and say, ‘I want to have an intuition about a market.’ You’re going to have way too many judgments.”

The Origin of Trend Following: Richard Donchian

Dennis and Eckhardt did not invent trend following. From the 1950s into the 1970s, there was one preeminent trend trader with years of positive performance: Richard Donchian. Donchian was the undisputed father of trend following. He spoke and wrote on the subject and influenced Dennis and Eckhardt, along with just about every other technically minded trader of that era.

One of Donchian’s students, Barbara Dixon, described trend followers as making no attempt to forecast the extent of a price move. The trend follower “disciplines his thoughts into a strict set of conditions for entering and exiting the market and acts on those rules or his system to the exclusion of all other market factors. This removes, hopefully, emotional judgmental influences from individual market decisions.”

Trend traders do not expect to be right every time. In fact, on individual trades they admit when they are wrong, take their losses, and move on. However, they do expect to make money over the long run. In 1960, Donchian reduced this philosophy to what he called his “weekly trading rule.” The rule was brutally utilitarian: “When the price moves above the high of two previous calendar weeks (the optimum number of weeks varies by commodity), cover your short positions and buy. When the price breaks below the low of the two previous calendar weeks, liquidate your long position and sell short.”

Why Price Is the Only Metric That Matters

Dennis’s protégé Tom Willis had learned long ago why price — the philosophical underpinning of Donchian’s rule — was the only true metric to trust. He said, “Everything known is reflected in the price. I could never hope to compete with Cargill, who has soybean agents scouring the globe knowing everything there is to know about soybeans and funneling the information up to their trading headquarters.”

Willis added: “They don’t know anything about bonds. They don’t know anything about the currencies. I don’t either, but I’ve made a lot of money trading them. They’re just numbers. Corn is a little different than bonds, but not different enough that I’d have to trade them differently. We’re trading mob psychology. We’re not trading corn, soybeans, or S&Ps. We’re trading numbers.”

“Trading numbers” was just another Dennis convention to reinforce abstracting the world in order not to get emotionally distracted. Dennis made the TurtleTraders understand price analysis. He did this because at first he “thought that intelligence was reality and price the appearance, but after a while I saw that price is the reality and intelligence is the appearance.”

Dennis was blunt about fundamental analysis: “Abstractions like crop size, unemployment, and inflation are mere metaphysics to the trader. They don’t help you predict prices, and they may not even explain past market action.” The greatest trader in Chicago had been trading five years before he ever saw a soybean. He poked fun at the notion that weather should change his trading: “If it’s raining on those soybeans, all that means to me is I should bring an umbrella.”

Michael Gibbons, a trend following trader, put it plainly: “I stopped looking at news as something important in 1978. A good friend of mine was employed as a reporter by the largest commodity news service at the time. One day his major ‘story’ was about sugar and what it was going to do. After I read his piece, I asked, ‘How do you know all of this?’ I will never forget his answer; he said, ‘I made it up.'”

The Core TurtleTrader Axioms

The TurtleTraders’ core axioms were the same ones practiced by the great speculators from one hundred years earlier:

• “Do not let emotions fluctuate with the up and down of your capital.”
• “Be consistent and even-tempered.”
• “Judge yourself not by the outcome, but by your process.”
• “Know what you are going to do when the market does what it is going to do.”
• “Every now and then the impossible can and will happen.”
• “Know each day what your plan and your contingencies are for the next day.”
• “What can I win and what can I lose? What are probabilities of either happening?”

William Eckhardt’s Five Questions for Every Trade

There was precision behind these familiar-sounding principles. From the first day of training, William Eckhardt outlined five questions that were relevant to what he called an optimal trade. The TurtleTraders had to be able to answer these questions at all times:

• What is the state of the market?
• What is the volatility of the market?
• What is the equity being traded?
• What is the system or the trading orientation?
• What is the risk aversion of the trader or client?

There was no messing around in Eckhardt’s tone, as he suggested that these were the only things that had any importance.

What is the state of the market? The state of the market simply means: what is the price that the market is trading at? If Microsoft is trading at 40 a share today, then that is the state of that market.

What is the volatility of the market? Eckhardt taught the TurtleTraders that they had to know on a daily basis how much any market goes up and down. If Microsoft on an average trades at 50, but typically bounces up and down on any given day between 48 and 52, then the volatility of that market was four. They had their own jargon to describe daily volatilities. They would say that Microsoft had an “N” of four. More volatile markets generally carried more risk.

What is the equity being traded? The TurtleTraders had to know how much money they had at all times, because every rule they would learn adapted to their given account size at that moment.

What is the system or the trading orientation? Eckhardt instructed the TurtleTraders that in advance of the market opening, they had to have their battle plan set for buying and selling. They could not say, “Okay, I’ve got $100,000; I’m going to randomly decide to trade $5,000 of it.” The TurtleTraders had two systems: System One (S1) and System Two (S2). These systems governed their entries and exits. S1 said you would buy or sell short a market if it made a new twenty-day high or low.

What is the risk aversion of the trader or client? Risk management was not a concept that the TurtleTraders grasped immediately. If they had $10,000 in their account, should they bet all $10,000 on one trade? No. If that trade moved against them, they could lose everything fast. Small betting — for example, 2 percent of $10,000 on initial bets — kept them in the game to play another day, all the while waiting for a big trend.

The Class Discussion: Follow the Rules or You Are Out

Day after day, Eckhardt would emphasize comparisons. Once he told the TurtleTraders to consider two traders who have the same equity, the same system, and the same risk aversion, facing the same situation in the market. For both traders, the optimal course of action must be the same. “Whatever is optimal for one should be optimal for the other,” he would say.

In essence Eckhardt was saying: you are not special. You are not smarter than the market. So follow the rules. He did not want his students to wake up and say, “I’m feeling smart today,” or “I’m feeling lucky today.” He taught them to wake up and say, “I’ll do what my rules say to do today.”

Dennis was clear that it would take discipline to follow the rules day to day: “To follow the good principles and not let fear, greed and hope interfere with your trading is tough. You’re swimming upstream against human nature.” The TurtleTraders had to have the confidence to follow through on all rules and pull the trigger when they were supposed to. Hesitate and they would be out in the zero-sum market game.

This motley crew of novices quickly learned that of the five questions deemed most important by Eckhardt, the first two — about the market’s state and volatility — were the objective pieces of the puzzle. Eckhardt was most interested in the last three questions, which addressed equity level, systems, and risk aversion. They were subjective questions grounded in the present. It did not matter what the answers to these three questions were a month ago or last week. Only right now was important.

Eckhardt wanted the TurtleTraders to think in terms of “memory-less trading.” He told them: “You shouldn’t care about how you got to the current state but rather about what you should do now. A trader who trades differentially because of swings in confidence is focusing on his or her own past rather than on current realities.”

The Rules

Learn the exact rules used by Richard Dennis and his TurtleTraders:

Frequently Asked Questions About the TurtleTrader Rules

What were the original Turtle Trading rules?

The TurtleTrader rules were a complete systematic trend following system covering market entry, exit, position sizing, and risk management. Entries were based on price breakouts — new 20-day or 55-day highs and lows. Exits were defined in advance. Position sizes were calculated based on market volatility, expressed as “N,” to ensure consistent risk across all markets.

Why did Richard Dennis base the rules on price rather than fundamentals?

Dennis believed that price reflects all known information about a market faster than any trader can gather and process that information independently. Trading on news, earnings reports, or supply data puts you in competition with institutions that have vastly more resources. Price, by contrast, is objective, universally available, and reflects the collective behaviour of every participant in the market.

What is the “N” in the TurtleTrader system?

N is the TurtleTrader term for daily volatility — specifically the average true range of a market over a given period. It was used to size positions: the more volatile a market, the smaller the position taken, so that a loss on any single trade represented a consistent percentage of total equity regardless of which market was being traded.

What were System One and System Two?

System One (S1) was a faster system that entered trades on 20-day price breakouts — a new 20-day high for a long position or a new 20-day low for a short position. System Two (S2) was slower, using 55-day breakouts. Both systems were trend following at their core: they required a market to demonstrate a clear directional move before a position was taken.

Why is the scientific method central to the TurtleTrader rules?

Dennis and Eckhardt insisted that every trading decision had to be grounded in observable, testable, repeatable evidence — not instinct, not news, not gut feeling. The scientific method was the framework they used to develop the rules and the framework they expected their students to apply when evaluating any trading idea. It was the only protection against the psychological biases that destroy most traders.

Do the Turtle Trading rules work today?

The core principles remain sound. The trend following approach taught to the TurtleTraders is used by some of the largest and most successful systematic trading firms in the world. Markets change in their surface characteristics, but the underlying behaviour — price trends persisting across asset classes, human psychology driving momentum — has not changed. The rules that worked in 1983 continue to inform how serious systematic trend following is practised today.

Want to understand how the selection process worked before the training began? Read the TurtleTrader selection process