Richard J. Dennis is a commodities trader once known as the "Prince of the Pit." In the early 1970s, he borrowed $1,600 to purchase a seat at the MidAmerica Commodity Exchange. Within a decade, he turned it into $200 million by trading new weekly and monthly highs in the trending, inflationary markets of the 1970s. Dennis was known for holding positions over longer periods, in contrast to the short-term scalping strategies used by many professionals. He typically entered short-term trades and held them through the mid-term.

 

Richard Dennis Background

 

Born in 1949, Richard J. Dennis rose from a working-class Chicago background to become the iconic "Prince of the Pit," famed for turning a $1,600 loan into $200 million in just over a decade.

• Began trading soybean futures as a teen, mastering the chaotic trading pits.

• Bought a MidAmerica Commodity Exchange seat in the early ’70s, kicking off his professional journey.

• Rode major commodity trends through the volatile ’70s, focusing on longer-term moves rather than quick scalps.

 

The Richard Dennis Trend-Following Method:

• “The Trend Is Your Friend—Until It Ends”: Bought on new highs, sold on breakdowns, letting winners run and cutting losses swiftly.

• Risk Management: Never risked more than 1-2% per trade and used pyramiding to scale into winners.

• Contrarian Strength: Held positions through sharp pullbacks if trends remained intact, thriving amid stagflation.

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The Turtles Experiment

 

Richard Dennis firmly believed that successful trading could be taught. To test this belief, he partnered with William Eckhardt to conduct an experiment. Between 1983 and 1984, they recruited and trained 23 individuals—21 men and 2 women—who would come to be known as the “Turtles.”

• The trainees underwent just two weeks of instruction, during which they learned a trend-following system applied to currencies, bonds, and commodities. In addition, they were taught a basic money management system with clearly defined rules.
• After the training, each participant was given a practice account. Following a trial period, Dennis allocated real trading accounts—ranging from $250,000 to $2 million—to the top-performing Turtles. Over the next five years, the Turtles reportedly generated $175 million in profits.
• The experiment has since been documented in multiple books and is widely regarded as one of the most remarkable success stories in trading history.

 

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Richard Dennis Trading Tips

 

■ When the markets are emotionally overwrought, they’re almost always wrong

Trading has taught me not to take the conventional wisdom for granted. What money I made in trading is testimony to the fact that the majority is wrong a lot of the time. The vast majority is wrong even more of the time. I’ve learned that markets, which are often just mad crowds, are often irrational; when emotionally overwrought, they’re almost always wrong.

 

■ Trading is similar in all financial markets

I could trade without knowing the name of the market.

 

■ Commodities are trending and, arguably, stocks are random

My research on individual stocks shows that price fluctuations are closer to random than they are in commodities. Demonstrably, commodities are trending and, arguably, stocks are random. 

 

■ Make sure you are riding a trend

Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend. If I see a trend developing, I know eventually I'll have to get in. The question is whether I get in earlier or later, and that might depend on how I see the market reacting to the news. If a market goes up when it should go up, I might buy earlier. If it goes down when it should go up, I'll wait until the trend is better defined.

 

■ Expect the unexpected

You should expect the unexpected in this business; expect the extreme. Don't think in terms of boundaries that limit what the market might do. The unexpected and the impossible happen every now and then.

 

■ Decisions should be made unemotionally

Trading decisions should be made as unemotionally as possible.

 

■ Trade for a good reason

When you have a position, you put it on for a reason, and you've got to keep it until the reason no longer exists.

• A good trend following system will keep you in the market until there is evidence that the trend has changed.

 

■ Stick to your rules even when things are going bad is very difficult

You could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.

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Richard Dennis Money Management Tips

 

■ Cut your losses short, as a certain amount of loss will affect your judgment

You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period.

• I learned to avoid trying to catch up or double up to recoup losses. I also learned that a certain amount of loss will affect your judgment, so you have to put some time between that loss and the next trade.

 

■ Trade small and learn from your mistakes

Trade small because thats when you are as bad as you are ever going to be. Learn from your mistakes.

 

■ Don't focus on the day-to-day fluctuations in your equity

Don't be misled by the day-to-day fluctuations in your equity. Focus on whether what you are doing is right, not on the random nature of any single trade's outcome.

 

■ Trading is like betting on independent roles of the dice

Trading to me is like betting on independent roles of the dice that you think are loaded a little bit in your favor because you know some statistical things about the market.

 

■ Be careful on Fridays

 It is important not to have a short position with a loss on Friday if the market closes at a high, or a long position if it closes at a low.

 

 

■ Richard Dennis (Commodities Trader)

Forex-Investors.com (c)

 

BOOKS:

» Richard Dennis on Google Books