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Performance Over Time of Richard Dennis Strategies | Historical Performance of Richard Dennis' Techniques
Richard Dennis is known as a legendary commodities trader who embarked on several outstanding trades and made astonishing profits throughout his career. He earned a wealth of $350 million and was one of the creators of the Turtle Trading Strategy, which 13 beginner traders used and made millions too. But what trades did he do and how well his performance was?
Richard Dennis Trading Strategy
Known as the prince of the pit, Richard Dennis stood out on Wall Street by reaping tremendous success and collecting overwhelming returns, starting with a record of turning an initial balance of $5,000 into more than $100 million.
His trading mindset was based on a trend-following strategy with robust risk management and strict entry and exit rules. In his early beginning, he was trading instruments such as:
- Coffee
- Silver
- US Dollar
- Japanese Yen
Unlike those who implement scalping, he as a trend trader developed a swing approach, meaning that he held positions longer to capitalize on significant directional moves. This methodology allowed him to execute various trades in a single market trend. This process is known as pyramiding.
Pyramiding consists of adding more lots or future contracts to an existing winning position, increasing the unrealized profits as the trend evolves. Conversely, he stuck to a rigid rule of cutting losses quickly.
Richard Dennis's Performance and Legacy
In his early beginnings, Dennis borrowed $1,600 which experienced a spending of $1,200 for a seat in the MidAmerica Commodity Exchange and left him with just $400 and then he turned it into $350 million in a time span of six years.
His performance towards the first million was as follows:
- In 1970, his capital increased from $400 to $3,000.
- In 1973 his capital already reached over $100,000.
- In the same year (1973), Dennis made a profit of $500,000 trading soybeans
- In 1974, by the end of that year, he reached his first million at 26 years old.
In 1987, during the Black Monday Crash, he lost around $10 million and stopped trading for a while.
Regarding his trading, we can remark on some memorable trades, such as the following.
Bet on the US dollar
In the early 1980s, The U.S. was just recovering from a lost decade when huge inflation and high interest rates put significant pressure on economic growth and stock markets.
Although the impacts of the crisis rolled well into the early 1980s, Richard Dennis made a brave prediction regarding the strengthening of the US dollar.
Dennis correctly anticipated a significant boom in the US economy and the growth of the dollar, therefore embarking on a large long position in the market.
When global economic conditions matched his prediction, the dollar experienced meaningful growth and his trade turned profitable.
Trade Short Against The Japanese yen
Similar to Paul Tudor Jones, in the mid-1980s, Richard Dennis turned his attention to the Japanese yen and identified an interesting opportunity.
He anticipated that the yen would decline in value, primarily as a result of the Bank of Japan's monetary policy decisions related to interest rates.
Dennis took a short position on Japanese yen futures, taking advantage of the currency's downward trajectory. His trade turned out to be incredibly profitable.
Trading coffee
While trading coffee futures in the early 1980s, Richard Dennis spotted a shortage of supply in the coffee industry due to fundamental factors such as adverse weather conditions and crop failures.
Dennis expected that this shortage would significantly increase coffee prices. Consequently, he took a long position on coffee futures contracts and followed the upward trend of the sharp rise in prices.
The silver trade
Beyond currencies and commodities, Richard Dennis traded silver.
In the late 1970s, he seized an opportunity in the silver market. He was confident that this precious metal was trading below its standard value and therefore entered a long position in the futures market.
When concerns about global inflation increased and investors strived for safe assets, the price of silver increased sharply. Dennis' analysis paid off correctly, and he amassed gains in the bull run.
The Turtle Trading Strategy Performance
The Turtle Strategy was a trading experiment that Richard Dennis carried out with his trading floor colleague William Eckhardt. This experiment involved 13 participants.
This strategy used the Donchian Channel and the Average True Range (ATR) to set a trend-following trade.
The following table exposes the performance and returns of the turtle traders trained by Richard Dennis.
Trader | Average Annual Compound Return % | First Half 1989 Return % | Annual Returns % | Quarterly Returns % |
|---|---|---|---|---|
| Stig Ostgaard | 124.1% | 0.4% | 87.8 to 296.7% | 49 to 317.5% |
| Elizabeth Cheval | 114.1 | 41.1 | 51.6 to 178.0 | -27.1 to 203.3 |
| Michael Cavallo | 107.7 | 16.1 | 33.6 to 307.4 | -54.7 to 195.5 |
| Chesapeake | 94.4 | 6.4 | 45.7 to 147.7 | -13.1 to 160.1 |
| Paul Rabar | 89.1 | 20.0 | 78.1 to 125.9 | -24.8 to 189.6 |
| Philip Lu | 88.9 | 36.0 | 36.3 to 132.3 | -9.2 to 148.2 |
| Craig Soderquist | 82.4 | 21.3 | 58.9 to 135.9 | -20.0 to 132.2 |
| James DiMaria | 70.9 | 0.8 | 17.3 to 154.9 | -20.2 to 192.3 |
| Brian Proctor | 64.5 | -13.2 | -20.1 to 151.9 | -41.6 to 155.8 |
| Howard Seidler | 64.2 | 23.0 | 15.8 to 123.6 | -16.6 to 90.3 |
| Tom Shanks | 63.7 | 18.8 | -29.1 to 195.1 | –37.8 to 183.1 |
| Jeff Gordon | 41.8 | 16.4 | 3.2 to 111.1 | -5.6 to 83.9 |
| Michael Carr | 38.9 | 13.7 | -18.1 to 88.0 | -31.7 to 112.4 |
Conclusion
Richard Dennis was a successful commodity trader with an outstanding performance, which made him famous. In the turtle trading program, he trained several beginner traders in his trend-following strategy, demonstrating how powerful a trend strategy can be since the "turtles" also made millions.
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