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2024-06-10 • Updated

Richard Dennis - a genius of commodity trading

Nowadays the Internet is full of stories of ups and downs, successes and disappointments in the Forex market. One can find a few dozens of such stories that fit every taste. But you have hardly heard the incredible story of astonishingly rich, a genius and a pioneer of commodity trading, Richard Dennis.

Dennis’ story is the type of stuff for trading legends that can still fire the engines of aspiring traders today. This guy was around 23 years old and he was reported to have borrowed $1,600 and turned it into $200 million in about 10 years trading commodities. By the time he was 26 years old, he was already a millionaire trader.

So called “Prince of the Pit” was born on the South Side of Chicago in 1949 in quite poor Irish-catholic family, where only father worked as utilities cleaner. Dennis became an order runner on the trading floor of the Chicago Mercantile Exchange at age 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 circumvent a rule requiring traders to be at least twenty-one years of age, he worked as his own runner, and hired his father, who traded in his stead in the pit. That’s how he got his moniker.

Dennis earned a bachelor's degree in philosophy from DePaul University, then accepted a scholarship for graduate study in philosophy at Tulane University, but then changed his mind, and returned to trading. He borrowed $1,600 from his family, which after spending $1,200 on a seat at the MidAmerica Commodity Exchange left him $400 in trading capital. In 1970, his trading increased this to $3,000, which he described as "compared to $400 ... a real grubstake", and in 1973 his capital was over $100,000. He made a profit of $500,000 trading soybeans in 1974, and by the end of that year was a millionaire, just short of twenty-six years of age.

Fresh-baked millionaire believed that successful trading could be taught. To settle a debate on that point with William Eckhardt, a friend and fellow trader, Dennis hired and trained 21 men and 2 women, in two groups, one from December 1983, and the other from December 1984. Dennis trained this, known as Turtles, for only two weeks about a simple trend-following system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range.

Newbie traders were taught to cut position size during losing periods and to pyramid aggressively—up to a third or a half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is range bound, often for months at a time, and profits during large market moves. Then, he gave each of them a million dollars of his own money to manage. When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million. Fantastic result, isn’t it?

Alongside with training of the Turtles, Dennis began managing capital for private clients but withdrew from this area in 1988 following heavy client losses during the crash of 1987 which is also known as Black Monday. Year after the crash, Dennis decided to pack up his diminished fortune, estimated at $200 million, and move on to another pursuit: politics. He said he aims to invest in causes and candidates that reflect a philosophy he describes as "an idiosyncratic mix of economic free markets and liberal social policies."

Richard Dennis Trading Strategy

These are not the exact buy and sell rules of Richard Dennis strategy. There are books or websites out there that have details of his exact trading strategy, but his overall methodology of how he trades are listed below:

1. Markets – What to buy or sell

The first decision is what to buy or sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you don’t want to trade markets that have too low trading volume, or that don’t trend well.

2. Position sizing – How much to buy or sell

The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders.

How much to buy or sell is the single most important aspect of trading. Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.

3. Entries – when to buy or sell

The decision of when to buy or sell is often called the entry decision. Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.

4. Stops – When to get out of losing position

Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.

5. Exits – When to get out of winning position

Many “trading systems” that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning position is not a Complete Trading System.

6. Tactics – How to buy or sell

Once a signal has been generated, tactical considerations regarding the mechanics of execution become important. This is especially true for larger accounts, where entry and exit of positions can result in significant adverse price movement, or market impact.

Despite these losses Dennis’ legend remains intact, having taken $1,600 to around $200 million in 10 years and having taken 23 total beginner traders on to make around $175 million in five years. So, may be his advises will help you to turn into a top-class trader as well?

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