The world of investing has always been accompanied by an aura of exclusivity, propagated through the perception that one has to possess luck and innate skills to be successful. However, prosperous traders shouldn’t be put on a pedestal because they once knew nothing about the intricacies of investing. Everyone goes through a learning process. Throughout history, there have been repeated cases of novice traders who persevered with discipline, determination, and a strategic approach, eventually reaching excellent results.
We will examine some of these historical cases that show anyone has the ability to become a proficient investor. While these examples aim to inspire courage, it is also important to keep a sombre mindset regarding the risks that go along with the journey from novice to expert trader.
The Turtle Experiment (1983)
The well-known Turtle Experiment was conducted by two legendary traders, William Eckhardt and Richard Dennis, seeking to settle their debate on whether investing relied on innate talent or attained skill. Over his career, Dennis managed to make a fortune through trading, turning his initial investment of around $5,000 into over $100 million. He was sure that it relied on pure skill, which could be taught to anyone. His partner, Eckhardt, held that Dennis’ success was due to a special gift he had.
The pair set up the experiment to put both theories to the test. Over two weeks, Dennis taught two diverse groups of selected individuals his trading techniques and funded their investment journey. These individuals were dubbed “turtles”, which Dennis named after witnessing the efficiency of a turtle farm in Singapore. He was confident that he could turn novices into profitable traders just as quickly.
The experiment was concluded as a phenomenal success, reaching cult status in the investment world. According to one former turtle, Russell Sands, the two groups taught by Dennis earned over $175 million in just five years. The exact trading techniques were shrouded in mystery for a long time, on top of being protected by copyrights. However, some insights on the rules were offered in Michael Covel’s book “The Complete TurtleTrader: The Legend, the Lessons, The Results” (2007):
- Never risk over 2% of your total account in one single trade.
- Be open to experimenting with your buy and sell signals, adapting them to your personal preferences.
- If you go for large returns, you should become comfortable with large drawdowns.
- Rely on prices rather than data from news sources to make decisions.
- Your exit strategy should be planned in tandem with your entry. Set your risk mitigation, when to cut losses, and when to take profits.
- Volatility should be calculated with average true range indicators, and your position size should be determined accordingly. Larger positions should only be taken in less volatile markets.
The focus groups were instructed to adhere to trend-following strategies, particularly the “trend is your friend”. The general idea behind Dennis’ alleged instructions is to buy when stock price breakouts occur. Positions should be closed once the trend starts to reverse and prices start to consolidate. However, trend-following strategies present risks in that they can lead you into drawdowns, and that must be accepted. As with all strategies, one must take them with a grain of salt and weigh whether the approach fits individual goals and risk tolerance. That is especially true in the current times, where one single tweet from figures like Elon Musk can influence stock prices drastically.
Historical Examples: Ordinary People, Extraordinary Traders
Throughout history, there have been numerous notable individuals who started with humble beginnings and managed to climb their way to the top. Here are some notable traders who achieved remarkable success:
Paul Tudor Jones
Paul Tudor Jones’ trading career started once he lost his day job due to falling asleep after a heavy night of partying with friends. Jones developed his personal trading strategy around staying consistent and not expecting quick returns. His realistic expectations and high risk-management skills eventually led to him attaining an estimated net worth of $7.5 billion.
Nicolas Darvas
A dancer and self-taught trader, Nicolas Darvas managed to turn a modest investment into a substantial fortune in the 1950s. During his dancing career, he would read and study for up to eight hours a day. He adhered to a simple strategy where he used strict money management and technical analysis to persevere with his trading plan. Later, he became well-known for his book “How I Made $2,000,000 in the Stock Market”.
Jesse Livermore
Jesse Livermore was a legendary trader who started with humble beginnings. Destined to be a farmer, he ran away from home and eventually became a billionaire. He learned to read, write, and analyse stock prices. Livermore was one of the first to employ stop-losses. After making a fortune, a series of three bankruptcies led to his downfall, underscoring the importance of smart wealth management.
The Crucial Role of Risk Mitigation
While becoming a profitable trader is within reach for anyone willing to learn, having a realistic understanding of the associated risks can’t be overemphasised. No trader is right 100% of the time. Losses will occur, and one must proceed with caution to mitigate them effectively.
Risk Management: Establishing a strong risk-management strategy is paramount to trading. Significant percentages of capital should never be risked in one single trade, and stop-loss orders should be put in place to limit one’s drawdowns.
Market Volatility: The stock market is famous for its volatility, therefore, novice traders shouldn’t overextend themselves. Positions are best put in line with one’s premeditated strategy as opposed to shooting from the hip.
Emotional Discipline: Successful traders are known for their cultivated objectivity. Emotional discipline must be learned because greed or fear can lead to impulsive, irrational decisions in reaction to market movements.
Continuous Education: Aspiring traders should commit to a process of continuous learning in order to stay on top of the latest trends, regulations, and technological advancements. Nowadays, the financial world evolves too quickly to get comfortable with one’s knowledge.
AI Paves the Way for Modern Trading Standards
History has shown that there are numerous examples of enthusiastic novices who became superb traders, and that should inspire anyone who is keen to start investing. However, it should be noted that the Turtle Experiment took place in different times and circumstances. While the lessons apply, staying open-minded and curious about the latest trading data is highly advisable. Thankfully, there is a wealth of online information to comfortably learn from. Recent advancements in leveraging AI software to optimise trading decisions stand out as promising, especially for beginners, and should not be overlooked. Staying open-minded, disciplined, and deliberate will undoubtedly help you achieve steady progress. We wish you the best in your trading endeavours!
