faith-interview0607 4/13/07 3:51 PM Page 44

Active Trader INTERVIEW

Curtis Faith: Turtle tales

Nearly 20 years after the famous trading experiment ended,
a graduate of the original “Turtle” class of 1983 is talking about his experiences.

BY ACTIVE TRADER STAFF

T rading has always been

something of an insular busi-
ness. Inside there are plenty
of rumors, myths, and “celebrities,” but
most of them don’t travel far in the wider
world. For every person who’s heard of
Paul Tudor Jones or Richard Dennis, for
example, there are thousands who have
heard of Warren Buffet.
But several years ago Curtis Faith got a
little taste, in an indirect way, of what
passes for fame in the trading industry.
“I was on a flight and sitting next to a
businessman who asked me what I did,”
he says. “I gave him my little story and
told him how I used to be part of this
trading group in Chicago, and he looked
at me and said, ‘You’re not one of the
Turtles, are you?’”
Faith laughs. “That was a big shock —
that I could randomly run into someone late 1983. taught to outperform in the markets.
who would have heard of us.” Richard Dennis and William Eckhardt The pair decided to launch a trading
The Turtles, as most traders know, (both of whom were profiled in Jack program to settle the debate. They would
were the eclectic group — a Ph.D. in lin- Schwager’s Market Wizards books) had teach a group of neophytes their trading
guistics, a professional gambler, and an already made millions in the markets system and then give those who success-
accountant, among others — assembled when they got the idea for the Turtle fully completed the program substantial
in the mid-80s by two heavy-hitting experiment. The two disagreed about trading accounts. As legend has it, the
Chicago futures traders. Curtis Faith — a whether great traders were the product of group’s moniker stemmed from Dennis’
nascent trading system designer and nature or nurture, with Eckhardt believ- visit to a turtle farm outside Singapore;
tester — was just 19 when was plucked ing successful traders had inherent skills he claimed he and Eckhardt would be
from obscurity to be part of the group in and Dennis arguing that anyone could be able to “grow” traders like turtles.

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Faith’s path to Turtledom began when trading operations of their own, Faith Over the years, I’ve come to appreciate
he, like hundreds of others, responded to walked away from trading in 1988 when that the things that are easy for me aren’t
a newspaper ad Dennis and Eckhardt had the Turtles were disbanded. easy for a lot of people. And through
placed in the New York Times, Wall Street “When the program ended, I was faced teaching people, I’ve seen what consis-
Journal, and Barron’s. He had dropped out with the decision of starting a new busi- tently stands in the way of success.
of college just before the Turtle program ness,” he says. “I would either start a Invariably, it comes down to just a few
began, but not because of a lack of direc- business in the same area I’d been in for things — essentially, psychological barri-
tion or ambition. the last four and a half years, or start ers people put in place. They basically
“I’d already decided I wanted to trade, something new. I’ve always been in favor don’t have the ability to put enough con-
and I was going to start with some money of learning something new, and I was fidence in their own thinking — especial-
from my father when the Turtle program bored.” ly when it comes to simple ideas.
came along, which changed my plans,” He laughs. “As it turns out, I’m sure I People seem to have this need to create
he says. would have made a hundred times as complexity and believe trading must be
After surviving the interview process, much money over the past 20 years, but more complicated than it really is. When
he ended up in Chicago with 13 other it doesn’t matter.” you try to show them something that’s
students and spent the next four years Faith, 43, currently heads research and relatively simple and explain, “Yes, you
trading the Turtle way. development for a company called can make a lot of money with that,” they
In his new book, The Way of the Turtle TradingBlox (www.tradingblox.com), don’t believe it.
(2007, McGraw-Hill), Faith recounts his which provides simulation software for
AT: Do you think your youth was
one of the things that made you dif-
Most people would be surprised at how little we ferent among the Turtles, in that you
had fewer biases or preconceptions?
actually did. Most of our time was spent waiting CF: I’ve been asked that question before,
and my reply was yes, I thought it was
for something to happen. because of my age. But looking back, I
actually think it wasn’t the major factor.
It was really a combination of two
experiences in the Turtle program, how back-testing automated trading systems. things. First, I was the only person who
they traded, and what he learned about The software, Faith says, was actually an came into the program with a back-
himself and traders in general. The book outgrowth of an internal research tool he ground in the computerized testing of
also functions as a primer on risk man- built for a hedge fund he was working trading systems.
agement, trading concepts (with the with (Galt Capital) in 2000-2001. Second, I have tremendous confidence
emphasis on trend following), and behav- From Buenos Aires, Faith first com- in my own thinking — even when it con-
ioral finance, as well as what Faith con- mented on his decision to write a book flicts with other people — which lets me
siders the more valuable lessons and about his life as a Turtle after all these take risks other people would never take
rewards of embracing risk. years. when I feel the corresponding rewards
Faith, now 43, was by far the youngest are large enough.
participant in the Turtle experiment — AT: Why did you write the book,
and also one of the most successful dur- and why now — more than 20 years AT: How did you get started testing
ing the program’s four-year run, reported- after the experience? systems?
ly racking up profits in excess of $30 mil- CF: The time was right. I couldn’t have CF: It’s funny. My sister was doing
lion. Over the four years until the pro- written a good book at the time, or short- accounting for a guy named George
gram was terminated in 1988, the Turtles ly after the Turtle experience, mainly Arndt, who had made a significant
posted an average annual return of 80 because I don’t think I had a very mature amount of money in the run-up in gold
percent. (Faith, however, points out that understanding of the reasons for my suc- in the late 70s. He was smart enough to
some underperforming Turtle students cess. I wasn’t old enough to really appre- realize he needed to develop a plan. He
were dropped from the program early on, ciate how I was different from other peo- had a technology background, so he
so this figure has an element of “survivor- ple. I think that, as a young trader in my hired some people and started writing
ship bias.”) early 20s, I didn’t really understand that software to do research.
However, unlike several of his cohorts, the way my brain works and the way I I hadn’t actually programmed comput-
including Jerry Parker of Chesapeake thought about things were different from ers before, but he had been hiring some
Capital, who went on to found successful most people. continued on p. 46

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Active Trader Interview continued

high school students I knew, and my sis- account to trade during a kind of AT: You’re talking about adjusting
ter mentioned I knew a lot about com- probationary period. What was the the number of contracts so the dollar
puters. trading process itself like? value of the positions is kept constant
At that point, my knowledge of com- CF: The way our trading methodology in different markets, right?
puters consisted of having purchased worked was to put on our positions in CF: Right. So, assuming everything else
Radio Shack’s TRS-80 computer manual. chunks called units. Normally, the size of was equal, our positions tended to go up
But I went over one day and talked to the unit would depend on the volatility of and down about the same [dollar]
him and he said, “Come in next week. If the market, so in a market with low amount every day. That was an innovative
you can do the job, you can stay. If you volatility we might have a lot of contracts concept.
can’t, you leave.” on, while in a high-volatility market we’d In fact, because of the way the data
I was doing it 25 to 30 hours a week, have fewer contracts on. existed at that point, I had only been run-
while I was in school. I was actually in For the probationary period our unit ning single-market tests (before becoming a
high school for part of that time. size was three contracts — for every mar- Turtle). I’d run many, many tests, but it
ket — just to make things simple. By was always a matter of considering the
AT: How long did you do that comparison, later on we’d have unit sizes profits in, say, corn, soybeans, gold, and
before you came across the Turtle of 20, 30, or 50 contracts, in some cases. silver separately, whereas Rich really
ad? looked at things from the perspective of
CF: Just about two years. AT: And what were the systems you the total portfolio.
were given to trade? Were they just You get completely different answers if
straight breakout systems? you look at trading from a portfolio per-
CF: We had two systems, which were spective; you come to different conclu-
I viewed it more as very similar in a lot of ways. One was sions about whether you should be trad-
slightly shorter-term than the other — 20 ing a particular market.
points in a game days vs. 50 to 60 days.
They weren’t stop-and-reverse systems. AT: What kind of freedom were you
rather than money. Both systems would take you out of the given? You wrote something to the
market for significant periods of time — effect that you could do whatever
they would exit the market on a shorter you wanted but you had to justify
AT:: Let’s talk about the Turtle expe- breakout than the entry breakout. For your trades in a journal of some kind.
rience. There are lots of rumors example, if the market went lower for CF: We could do whatever we wanted
about it in the trading world. First, two weeks, we’d get out (after entering on within the framework of what we’d been
was it really competitive or was there a 20-day upside breakout). In most mar- taught. With respect to markets, we were
a sense of camaraderie? kets we didn’t have positions on most of essentially told, “Pick your markets and
CF: I would say there was more cama- the time. be consistent with them — don’t pick
raderie than competition, although I and choose trades.”
think I was probably the most competi- AT: You’d already been researching We could decide, say, we weren’t com-
tive of the bunch. But I would character- and testing systems before this, so fortable trading one of the thinner mar-
ize us as friends rather than competitors. how much of what you learned — in kets, such as coffee. In my case, I didn’t
It was, overall, a very nice group of peo- terms of actual trade signals — in the like the S&P 500 because I didn’t think it
ple. We hung out and had lots of discus- Turtle training did you already know? trended well for the type of short-term
sions. We played ping pong all the time CF: The system’s entry and exit rules systems we were trading. So I never trad-
in the office. were things I’d seen before. The ed it.
But what I think would surprise most Donchian breakout was one of the first But we weren’t supposed to pick and
people was how little we actually did. things I actually programmed. choose trades, and that’s where people
Most of our time was spent waiting for The normalization of volatility across got into trouble. They would decide a
something to happen. I’d usually be read- markets and the idea of adjusting the particular trade in a particular market
ing a book or something like that. In the quantity you traded based on the volatili- was too risky — and that would be the
first year I probably went through eight ty of particular markets was a new con- one that would end up making 50 per-
Steven King novels and 20 or 30 other cept at that time. In fact, I don’t think it cent on the year.
books. was until 1998 when Van Tharp came out
with his book Trade Your Way to Financial AT: Other than market selection,
AT: In your book you write the initial Freedom that the concept started to be were you completely mechanical
training period was only two weeks, something most people looked at. yourself in terms of executing the sig-
and then you were given a small nals?

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CF: I was probably the most mechanical been able to stomach the kind of years. I’ve built software for corporate
of everyone. I was very consistent. If the drawdowns you experienced — I sales, sales automation — what came to
market broke out, I put on my positions think you wrote your maximum was be known as CRM software.
as fast as I could, and I did it every time around 70 percent — if it had been In 2000 I got back into trading and
the same way. The people who tended to your money? hooked up with a group of traders — a
be more discretionary lost money. CF: I suppose I can’t really answer that group where Ed Seykota was trading for a
question because I can’t go back and while — called Galt Capital. That’s when
AT: Was everyone aware how every- change [the way things were], but I don’t I started doing research again and looking
one else was doing? think it would have been different. at trading stocks and trading systems
CF: Just in general terms. We didn’t Every year we were given a fixed per- other than trend-following systems.
share P&L, but it was pretty obvious who centage of the profits, and that was all we
was up and who wasn’t. And it was also made — so that 70-percent drawdown I AT: You make it pretty clear in the
obvious who had done well the previous went through directly translated to 70 book that the two major trading prin-
year because we were all phoning in our percent less money I was going to make ciples for you are “manage risk” and
orders. If someone was phoning in a 50- at the end of the year. “be consistent.” Is that really all there
lot and you were phoning in a 300-lot, It’s certainly possible that I would have is to it, in your opinion? It sounds
you knew you were trading a larger traded differently had it been entirely my pretty simple.
account. money, but I really didn’t think of it that CF: Yes, and I think those ideas are the
way. I viewed it more as points in a game ones people have the hardest time with.
AT: That brings up an interesting rather than money, anyway. You’ll find a lot of really good traders
point, because you were initially who blow themselves up because they’re
given the biggest trading account of AT: Did you enjoy it from day to trading too hot (large), and then you’ll
the Turtles, right? day? find a lot of people who never become
CF: Yes. CF: In the beginning, yes. Toward the good traders because they’re too inconsis-
end it was incredibly boring to have to sit tent. I think it’s relatively easy to get an
AT: How much did you make over around and watch a screen when most of edge, which I would say is the other
the course of those four years? the time almost nothing was happening. important factor.
CF: Around $31.5 million. I think it’s a bit like flying an airplane: The overarching concern is not to
make it too complicated. People want it
to be complicated, and the complexity
they put into it — what they perceive as
Trading is a bit like flying an airplane: Most of the requirements for successful trading —
gets in the way.
the time it’s not very interesting, but every once
AT: What are the complexities you’re
in a while it’s horrifying. talking about?
CF: Well, people are always looking for
something different — a new type of
indicator, or they’re always trying to add
Most of the time it’s not very interesting, something to an existing trading strategy.
AT: When and why did the Turtle but every once in a while it’s horrifying. And instead of improving the strategy,
program end? they end up conforming it more and
CF: April 1988 — a little more than four AT: What did you do after 1988? more to a specific past, which makes it
years after it had started. Rich had some CF: I started several companies. I started less likely to perform well in the future.
drawdowns in some funds he was run- a computer hardware repair company For successful traders, discretionary
ning and was advised to discontinue trad- with my father that did pretty well for a trading tends to be fairly consistent. But
ing, so the program ended. while — we were in the Inc. 500 one for new traders and [unsuccessful]
I think most investors weren’t able to year — but that market pretty much traders, it tends to be all over the place.
stomach the kind of drawdowns that imploded when computer parts became They have complicated rules that will
trend-following gives you — at least at so cheap that everyone ended up buying give them lots of different reasons to
the kind of aggressive levels we were new computers every year instead of make or not make a trade, which makes
trading. repairing old ones. it difficult to be consistent.
I’ve probably been involved in five or And again, part of the reason is they’ve
AT: Do you think you would have six small software companies over the continued on p. 48

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Active Trader Interview continued

have changed over the past 20 years. The

Excerpt from Way of the Turtle breakout itself is not as strong as it once
was. As increasing numbers of people
“After witnessing the success of the Turtles, many traders recognized it as a concept, there started
and investors have concluded that Richard Dennis won his to be more and more noise associated
bet with Bill Eckhardt that trading can be taught. I don’t with it. So the presence of a single break-
agree. I think the bet was a draw. out wouldn’t necessarily mean the same
What many people do not know is that many Turtles, per- thing today as it did 20 years ago.
haps one-third to one-half of them, were less profitable than At the same time, what I consider the
the highest-performing Turtles or were not successful at all. overarching principles are still very much
So, although most of the Turtles learned from the experi- as valid as they once were. Trend-follow-
ences of that first month and over the months that followed developed into ing certainly still works. It’s a bumpy ride
winning traders, others were dropped from the program with losing records. — it’s not what your typical investor
The difference between the best- and worst-performing Turtles came down would like to experience, but it still
to their individual psychological makeup. Some took more readily to the works.
Turtle Way than did others, proving that although trading can be taught to
most people, some are better suited to it than others. AT: Isn’t it predicated to a certain
An important aspect of understanding the winning trader is understand- extent on having to trade a relatively
ing how his or her emotions affect trading. If you were born with the right diverse portfolio of markets, which
qualities, you will find it easier to learn how to trade well; if you were not, would also imply the need for a sub-
you will need to develop those qualities.” stantial bankroll?

— From Chapter Four of Way of the Turtle, by Curtis M. Faith. CF: Yes, and many people get in trouble
with that style of trading when they try to
trade a $20,000 account the same way we
used to trade a $1 million account. I
made it so complicated that they always well-known at the time. And you’ve think that’s one of the significant disser-
have a reason to do what their emotions also mentioned how hard it is for vices made by some of the people who
are telling them to do, anyway. people to handle the kinds of draw- try to sell books and such today.
downs that went with the type of If you want to follow trends and get
AT: You never found yourself caught trading you were doing. relatively smooth returns using normal-
up in the emotions of those huge In retrospect, did the market condi- sized contracts, you need to do it across a
trades — even the heating oil trade tions at the time have a lot to do significant number of markets to get
you write about in the book that with the success many of the Turtles diversity. And that requires a lot of money
— I would say, somewhere in the
$200,000 to $500,000 range — if you’re
Day trading is probably not the best thing for going to take reasonably small levels of
risk, which is prudent.
Some of the newer mini contracts
people to get started with because it’s too easy make it a little easier to trade smaller, but
you don’t have mini contracts in all the
to get caught up in the frenzy of the market. markets, so you end up getting less diver-
sification if you’re using them.

went to the moon after only a few experienced? There were huge AT: How many markets does it take
days (see Figure 1)? trends in a lot of commodities, and to diversify?
CF: I wouldn’t say that I never got these kinds of moves haven’t been as CF: There’s no specific threshold — 25
caught up in it, but I was probably less frequent or clean in recent history. or 30 markets is pretty good. Certainly
affected by it than anyone else, and it How much of the approach do you no fewer than 15. It also depends on how
didn’t affect my trading much, if at all. think is still valid and useful? you pick the markets. Fifteen currencies
CF: The specific rules are still profitable, wouldn’t be very diversified, for example.
AT: You make it clear the trading but they’re much more erratic. There are
rules themselves were nothing spe- much better ways to trade today. AT: You mentioned there are proba-
cial, and much of the approach was There are certainly some things that bly better ways to trade. What are

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they?
CF: I think most people would be better
off swing trading — essentially, taking a
lot of the same principles and applying
them to shorter time frames — for a cou-
ple of reasons. First, because of the
reduced size of the moves, entries and
exits are much closer, and therefore the
risk levels are lower on a per dollar basis.
That means you can trade a more diversi-
fied portfolio with a smaller account.
You’ll also tend to have much lower
drawdowns when measured over time. If
you have a trend that lasts a year and a
half — let’s say gold goes up to $700 and
then it drops back down to $500 before FIGURE 1: EARLY TURTLE TRADE An upside breakout in heating oil in early 1984
you get out — that’s a significant period was one of the first big moves the Turtles were able to capitalize on.
of time you’re sitting there watching loss- According to Faith, however, some of the traders didn't put on complete
positions, or liquidated all or part of their positions when the market pulled
es accumulate, and it’s also a significant
back from 0.98 to 0.94.
amount of money.
Source: TradeStation
But if the same thing happens over a
four-day period, it’s much easier for most
people to handle emotionally, because is the value of having a particular new…well, whether you fail or succeed, I
they might be sitting in a loss for only a mindset or attitude toward risk — a think it’s better than never trying, or
couple of days. I think people view losses trader’s perspective, in a way. never attempting something risky.
in an open position differently when CF: Yes, I think there are two principles. If you can learn to make risk your
they’ve held it a few days vs. six months. The first is that the truth is what it is — friend, you’ll be happier and more ful-
For example, if you buy gold at $700, you cannot hide from it. But we spend an filled in life. For me, the Turtle experi-
it goes up to $715, and you get out at awful lot of our time and energy pretend- ence was just one example of that. I’ve
$710 two or three days later, that drop ing or hoping things are different than had many subsequent experiences that
from $715 to $710 isn’t too painful. But they really are. That’s always a mistake. didn’t turn out well, but I still think they
it’s essentially the same sort of percentage Because eventually — since reality is were good experiences because I learned
you might see in a long-term trend-fol- what it is — we have to face it. a lot along the way.

If you can learn to make risk your friend, you’ll Additional Reading
Way of the Turtle
be happier and more fulfilled in life. by Curtis M. Faith
(McGraw-Hill, 2007).

lowing system. I just think it’s a lot easier The most common example is in rela-
www.wayoftheturtle.com:
on people’s psyches to trade shorter term. tionships. It seems like practically every-
Faith’s Web site for his book,
But day trading is probably not the one I know is in a relationship they know
which includes his blog.
best thing for people to start with because is not going to work out, but they can’t
it’s too easy to get caught up in the frenzy bring themselves to face that reality. A
www.tradingblox.com:
of the market. I’ve seen more people trader would say to himself, “look ‘the
Faith’s trading software site, which
make a successful transition from swing market’ didn’t do what I thought it was
includes information about the
trading to day trading than starting from going to do — get out of the trade.” I
Turtle trading program and rules.
scratch with day trading. [If they started definitely believe successful traders have
with swing trading], they’ve already that perspective, and that it works very
“Software review:
learned the kinds of concepts they need well in real life.
Trading Blox”
to trade well. The one thing I would tell people is
Active Trader, July 2006.
that taking risk is not such a bad thing. If
AT: One of the themes in the book you can learn to try something

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