Book Summary: Way of the Turtle – Ordinary People Into Legendary Traders – By Curtis Faith
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Trading is an interesting art form. Most of the theories in this book have to do with psychology of winning and losing. Research has shown that people are more emotional about losing money than they are about winning money. The negative effect of losing is almost 3 times stronger than winning. Professional traders know this and make big money because of it.
Why is this important to me?
I understand that you are going to invest the next 7 minutes reviewing this book summary so it needs to be actionable. With that said, this is important because people are looking for ways to make money in the markets. Financial planners have made a killing over the last 25 years; unfortunately most of their clients have not. This is a paradox that has people worried about their retirements. When you enter a 401K, it is touted as simply put money in and forget it. The problem here as people know, most 401K's are really bad investments. People put in money for years and the account seems to not have moved or worse is less than what you put in. Market pundits will tell you to simply think long term and keep putting money in. There are so many problems with this logic but I will not go into it now.
Financial education needs to be acquired by each person. I am accountable for my financial future and so are you.
Curtis Faith was an original turtle and at 19 years old made $31.5 million in profits. Let's examine what, why and how around the turtles.
1. What is the "way of the turtle?" This is a trading system based on principles that beat the market handedly over a long period of time. This book examines the system and shows you how they did and why some turtles were more successful than others.
2. Why is this important? We looked at this in the last section but based on my own quest for financial education, I wanted to study the most successful traders and understand the psychology around it.
How does it work? The how is the bulk of the book. I will examine the psychological side of why some turtles did better than others. There is a ton of math in these trading systems that I will let you dig into on your own.
1. Rules to live by: Trade with an edge, manage risk, be consistent, and keep it simple. The entire Turtle training, and indeed the basis for all successful trading, can be summed up in these four core principles.
2. Trading with an edge - Are you familiar with black jack? This is the only casino game that can be beaten without cheating. This is so because the game has a memory. Card counting and playing in teams is a way to create an edge so the odds swing in your favor. The same is needed in trading. The turtles were trend traders and understood how to create an edge to make money.
3. Manage Risk: In trading terms there is price risk and liquidity risk. Price risk is fairly straight forward, if you are betting the price goes up over time then your risk is that it either does not move or goes down. Liquidity risk consists of the number of people who will take your trade. The Forex trades $4 trillion per day. This morphs all other trading platforms in the world combined. The New York Stock exchange trades $32 billion per day to give you an idea.
4. Be Consistent - This is where Curtis beat all other Turtles. He simply stuck to the system through thick and thin. Being consistent is the way to trades heaven but actually doing it is another story. There is a concept in trading called a draw down that happens to all traders. This means you can make 100% returns in six months and then have a drawdown of 20% of your profits in one day. When this happens, then consistency goes out the window. The herd effect takes over and people run for the hills at the same time. The mental side of trading is by far the biggest asset or liability when executing any system.
Curtis summarizes the whole mechanical trading system in the book. He covers Markets, Position Sizing, Entries, Stops, Exits and Tactics. This is great information to know especially if you are thinking about investing money. I personally just got involved with a professional trading group and only will allocate 3% of my investment capital. I realize that if I need heart surgery, I will not pick up a book and do it myself. There are true pros out there and I don't want to be eaten. In the book, Curtis and the rest of the turtles were trained for only two weeks but they were mentored by professionals.
I hope you have found this short summary useful. The key to any new idea is to work it into your daily routine until it becomes habit. Habits form in as little as 21 days. One thing you can take away from this book is get financially educated. Understanding trading is a key component to financial education. This does not mean you have to do it but understanding it is important.