Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders - Hardcover

FAITH

Hardcover

ISBN 10: 007148664X ISBN 13: 9780071486644

Verlag: McGraw Hill, 2007

Inhaltsangabe

“We're going to raise traders just like they raise turtles in Singapore.”

So trading guru Richard Dennis reportedly said to his long-time friend William Eckhardt nearly 25 years ago. What started as a bet about whether great traders were born or made became a legendary trading experiment that, until now, has never been told in its entirety.

Way of the Turtle reveals, for the first time, the reasons for the success of the secretive trading system used by the group known as the “Turtles.” Top-earningTurtle Curtis Faith lays bare the entire experiment, explaining how it was possible for Dennis and Eckhardt to recruit 23 ordinary people from all walks of life and train them to be extraordinary traders in just two weeks.

Only nineteen years old at the time-the youngest Turtle by far-Faith traded the largest account, making more than $30 million in just over four years. He takes you behind the scenes of the Turtle selection process and behind closed doors where the Turtles learned the lucrative trading strategies that enabled them to earn an average return of over 80 percent per year and profits of more than $100 million. You'll discover

• How the Turtles made money-the principles that guided their trading and the step-by-step methods they followed
• Why, even though they used the same approach, some Turtles were more successful than others
• How to look beyond the rules as the Turtles implemented them to find core strategies that work for any tradable market
• How to apply the Turtle Way to your own trades-and in your own life
• Ways to diversify your trading and limit your exposure to risk

Offering his unique perspective on the experience, Faith explains why the Turtle Way works in modern markets, and shares hard-earned wisdom on taking risks, choosing your own path, and learning from your mistakes.

Über diesen Titel

Über die Autorin bzw. den Autor

Curtis M. Faith was the most successful of the Turtles, earning more than $30 million for Richard Dennis while trading as a Turtle. He is one of the industry's leading pioneers of mechanical trading systems and software. Faith is currently head of research and development for Trading Blox, LLC, a company that specializes in software for trading system analysis and development. He also runs an Internet forum for mechanical system traders at tradingblox.com/forum.

Von der hinteren Coverseite

After nearly 25 years, the turtles come out of their shells.

Way of the Turtle takes a never-before-seen look at the legendary Turtle Traders and the famous experiment that made them millions. Curtis Faith, the most successful member of this elite group, breaks the silence to reveal the rules, timing, risks, rewards, and secrets to his biggest trades and 100 percent annual returns. Sharing behind-the-scenes insights and step-by-step techniques, Faith shows how you can use the Turtle Way to achieve enormous profits-whatever your skill level.

“The most successful turtle was apparently Curtis Faith. Trading records show that Mr. Faith, who was only 19 when he started the program, made about $31.5 million in profits for Mr. Dennis.”-Stanley W. Angrist, The Wall Street Journal

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WAY OF THE TURTLE

By CURTIS M. FAITH

The McGraw-Hill Companies, Inc.

Copyright ©2007 Curtis M. Faith
All rights reserved.

ISBN: 978-0-07-148664-4

Contents

Acknowledgments
Foreword
Preface
Introduction
one Risk Junkies
two Taming the Turtle Mind
three The First $2 Million is the Toughest
four Think Like a Turtle
five Trading with an Edge
six Falling Off the Edge
seven By What Measure?
eight Risk and Money Management
nine Turtle-Style Building Blocks
ten Turtle-Style Trading: Step by Step
eleven Lies, Damn Lies, and Backtests
twelve On Solid Ground
thirteen Bulletproof Systems
fourteen Mastering Your Demons
Epilogue
bonus chapter Original Turtle Trading Rules
Bibliography
Index

Excerpt

CHAPTER 1

RISK JUNKIES

High risk, high reward: It takes balls of steel to play this game.—Told to a friend before starting the Turtle program

People often wonder what it is that makes someone a trader rather than aninvestor. The distinction is often unclear because the actions of many peoplewho call themselves investors are actually those of traders.

Investors are people who buy things for the long haul with the idea that over aconsiderable period—many years—their investments will appreciate invalue. They buy things: actual stuff. Warren Buffett is an investor. He buyscompanies. He doesn't buy stock. He buys what the stock represents: the companyitself, with its management team, products, and market presence. He doesn't carethat the stock market may not reflect the "correct" price for his companies. Infact, he relies on that to make his money. He buys companies when they are worthmuch more to him than the price at which the stock market values them and sellscompanies when they are worth much less to him than the price at which the stockmarket values them. He makes a lot of money doing this because he's very good atit.

Traders do not buy physical things such as companies; they do not buy grains,gold, or silver. They buy stocks, futures contracts, and options. They do notcare much about the quality of the management team, the outlook for oilconsumption in the frigid Northeast, or global coffee production. Traders careabout price; essentially they buy and sell risk.

In his informative and engaging book Against the Gods: The Remarkable Storyof Risk, Peter Bernstein discusses how markets developed to allow thetransfer of risk from one party to another. This is indeed the reason financialmarkets were created and a function they continue to serve.

In today's modern markets, companies can buy forward or futures contracts forcurrencies that will insulate their business from the effects of fluctuations incurrency prices on their foreign suppliers. Companies also can buy contracts toprotect themselves from future increases in the price of raw materials such asoil, copper, and aluminum.

The act of buying or selling futures contracts to offset business risks causedby price changes in raw materials or fluctuations in foreign currency exchangerates is known as hedging. Proper hedging can make an enormousdifference for companies that are sensitive to the costs of raw goods such asoil. The airline industry, for example, is very sensitive to the cost ofaviation fuel, which is tied to the price of oil. When the price of oil rises,profits drop unless ticket prices are raised. Raising ticket prices may lowersales of tickets and thus profits. Keeping ticket prices the same will lowerprofits as costs rise because of oil price increases.

The solution is to hedge in the oil markets. Southwest Airlines had been doingthat for years, and when oil prices rose from $25 per barrel to more than $60,its costs did not increase substantially. In fact, it was so well hedged thateven years after prices started to go up, it was getting 85 percent of its oilat $26 per barrel.

It is no coincidence that Southwest Airlines has been one of the most profitableairlines over the last several years. Southwest's executives realized that theirbusiness was to fly people from place to place, not to worry about the price ofoil. They used the financial markets to insulate their bottom line from theeffects of oil price fluctuations. They were smart.

Who sells futures contracts to companies like Southwest that want to hedge theirbusiness risk? Traders do.

Traders Trade Risk

Traders deal in risk. There are many types of risk, and for each type of riskthere is a corresponding type of trader. For the purposes of this book, wedivide all those smaller risk categories into two major groups: liquidity riskand price risk.

Many traders—perhaps most of them—are very short-term operators whotrade in what is known as liquidity risk. This refers to the risk that atrader will not be able to buy or sell: There is no buyer when you want to sellan asset or no seller when you want to buy an asset. Most people are familiarwith the term liquidity as it applies to finance in the context of theterm liquid assets. Liquid assets are assets that can be turned intocash readily and quickly. Cash in the bank is extremely liquid, stock in awidely traded company is relatively liquid, and a piece of land is illiquid.

Suppose that you want to buy stock XYZ and that XYZ last traded at $28.50. Ifyou look for a price quote for XYZ, you will see two prices: the bid and theask. For this example, let's say you get a quote on XYZ as $28.50 bid and $28.55ask. This quote indicates that if you wanted to buy, you would have to pay$28.55, but if you wanted to sell, you would get only $28.50 for your XYZ stock.The difference between these two prices is known as the spread. Traderswho trade liquidity risk often are referred to as scalpers or marketmakers. They make their money off the spread.

A variant of this kind of trading is called arbitrage. This entailstrading the liquidity of one market for the liquidity of another. Arbitragetraders may buy crude oil in London and sell crude oil in New York, or they maybuy a basket of stocks and sell index futures that represent a similar basket ofstocks.

Price risk refers to the possibility that prices will move significantlyup or down. A farmer would be concerned about rising oil prices because the costof fertilizer and fuel for tractors would increase. Farmers also worry thatprices for their produce (wheat, corn, soybeans, etc.) may drop so low that theywill not make a profit when they sell their crops. Airline management isconcerned that the cost of oil may rise and interest rates may go up, raisingairplane financing costs.

Hedgers focus on getting rid of price risk by transferring the risk to traderswho deal in price risk. Traders who jump on price risk are known asspeculators or position traders. Speculators make money bybuying and then selling later if the price goes up or by selling first and thenbuying back later when the price goes down—what is known as goingshort.

Traders, Speculators, and...

Details zur Ausgabe

• Verlag: McGraw Hill
• Erscheinungsdatum: 2007
• Sprache: Englisch
• ISBN 10: 007148664X
• ISBN 13: 9780071486644
• Einband: Gebundene Ausgabe
• Auflage: 1
• Anzahl der Seiten: 312
• Kontakt zum Hersteller: McGraw-Hill Education; https://www.mheducation.co.in/; ; Via Verdi, 8; Assago Milano; 20090; Italien