In the U.S. futures market, Richard Dennis is a legendary figure. In the late 1960s, when Dennis was still in his teens, he worked as a runner at the exchange, earning just $40 a week. After two or three years, he felt the time was right to try his hand at futures trading. He borrowed $1,600 from friends and family, but due to limited funds, he could only buy a seat at the "Midwest Exchange" in Chicago for $1,200. This left him with only $400 in trading capital. For most people, trading futures with just $400 would seem almost impossible, but following his trend-following principles, Dennis turned that $400 into over $200 million, almost like magic. As his father put it, "Richard did well with that $400."
Dennis wasn't born a futures trader. At the time, he was still under 21 and couldn't directly trade at the exchange. His father would place bids for him, while Dennis would direct from the outside. After working intermittently for about two years, he lost around $2,000. When he finally turned 21, his father sighed in relief and said, "Son, now you can do it yourself. I don't understand this business at all." In the beginning, Dennis lost more than he won, and his monthly wages weren't enough to cover the losses from an hour of bad trading. However, in 1970, during a corn pest crisis, he turned his $400 into $3,000. Although he had originally planned to go to college, he decided to drop out after just one week and focus full-time on futures trading.
One day, after losing $300 on a bad trade, Dennis was frustrated and decided to reverse his position, but quickly lost more money. Determined, he tried again, and within a day, he lost a third of his initial capital. This loss became a pivotal lesson. After experiencing such highs and lows, he learned the importance of managing his emotions. If a trade wasn't going well, he would cut his losses, take a break, and avoid making additional poor decisions out of frustration. He realized that sometimes, when losses accumulate, the best trading opportunities arise after stepping away from the market.
Dennis learned that 95% of his profits came from just 5% of his trades. Missing out on the best opportunities could affect his overall performance. This idea of "let profits run, cut losses short" became central to his strategy. Years later, Dennis reflected on these lessons and realized the value of those early experiences.
In 1973, during a major soybean futures rally, prices soared above $4, and many traders assumed soybeans would drop again, similar to the previous years. But Dennis, following his trend-following approach, bought soybeans, and the price shot up like a rocket, reaching a peak of 1,297 cents per bushel. Dennis made enough money to move to a larger stage—CBOT, the Chicago Board of Trade.
Dennis's success was largely due to his ability to learn from experience. While many people either celebrated their profits or wallowed in their losses without analyzing what went right or wrong, Dennis took a different approach. After losing, he always reviewed his trades to identify mistakes, aiming to avoid repeating them. When he made money, he reflected on why it worked and considered how to apply the same principles to other markets.
Dennis's trading principles included:
Follow the trend: Never assume a price level is the "top" or "bottom." Trying to pick tops or bottoms is very risky. Dennis believed that while you can estimate the direction of the market, only the market can determine how far it will go. He occasionally experimented with counter-trend strategies but found them to be less effective.
Technical analysis: Dennis mainly used technical analysis and, with his partner William Eckhardt, developed a computer program for automatic trading. However, when the program conflicted with his own instincts, he would choose to stay out of the market.
Contrary market psychology: In futures trading, the majority of traders often lose money. Dennis learned that when 80% of traders are bullish, the market tends to top out, and when 80% are bearish, the market often rises.
Risk management: From his early mistakes, Dennis learned to manage risk. He discovered that profitable trades usually show gains quickly. If a trade was still losing after a couple of weeks, it was likely headed in the wrong direction. He would set a stop-loss and stick to it.
In 1978, Dennis decided to leave the trading floor and start trading from an office. Although he initially struggled with the change, he adapted and began focusing more on long-term trades. He also realized that without the direct feedback from the exchange floor, he needed to find new ways to assess market trends.
Dennis and Eckhardt formed a seamless partnership in futures trading, achieving remarkable success. But they had significant differences in their philosophies. Dennis believed that successful traders could be trained, while Eckhardt thought it was more about natural talent. To settle their debate, they launched an ad in The Wall Street Journal in 1983 and 1984, looking for individuals willing to be trained as futures traders. Over 1,000 applicants responded, and 23 were selected to undergo a rigorous training program. Dennis taught them his principles, and after four years, the students achieved impressive results, with many of them going on to manage large sums of money.
Dennis's "Turtle Trading" program became famous, and it proved that successful traders could be made with the right training and methods. His approach was based not on innate intelligence but on the principles of good trading practices.
