Saturday, March 31, 2007

Review of Curtis Faith's Way Of The Turtle

Curtis Faith's Way of the Turtle is a significant contribution to the trading literature. It works on several levels: It is an engagingly written first-person narrative of one of the most interesting experiments in trading, but it is also a thoughtful presentation of the various ingredients of trading success.

Faith spells out the Turtle trading method in detail, providing a template for a more general approach known as trend following. Most helpful is the way he breaks down the method into components: entry criteria, criteria for adding to positions, position sizing, stops, and exits. A particularly interesting chapter draws upon his Trading Blox software to update trend following research and illustrate the results of several systems in recent markets. One of the impressive--and sobering--conclusions from this exercise is that one must weather large drawdowns on the way to large profits. The research results hammer this home, and the book weaves the psychological implications.

If I had to identify a single theme for the book, it might be this: Relatively simple trading systems can provide a tradable edge, but it is psychologically difficult for traders to follow these systems and exploit that edge. Faith illustrates this with the variability in the results among the Turtle trainees (despite the fact that all of them were given the same system rules). He also provides a detailed accounting of the psychological biases that make it difficult to follow systems that ride relatively few big winning trades for an overall positive expectancy. Among the gems provided by Way of the Turtle is a discussion of stop loss criteria and surprising research about what works and doesn't; a concluding chapter that lays out the Turtle rules in manual form, along with execution tactics; and an insightful presentation of the reasons most traders do not succeed in trading.

Faith questions both discretionary trading--trading without systematically testing one's trading ideas--and the notion that trading systems eliminate emotions from trading. He makes it very clear that traders need an objective edge in the marketplace *and* the psychological fortitude to ride out inevitable drawdowns on route to exploiting that edge. Rigor in defining rules and consistency in following them emerge as keys to success. I particularly liked Faith's presentation of optimization (finding the best rules) vs. curve fitting, and his clear differentiation of the two.

I don't think it's necessary that one be a dedicated trend follower to greatly benefit from this book. Besides being a fun and interesting read, it is an excellent introduction to the various components of trading methods and how they impact outcomes. It is also a first-rate integration of the psychology and techniques of trading. Perhaps most important of all, Way of the Turtle is an illuminating presentation of risk management, a major contributor to market success. Readers will greatly benefit from Faith's clear examples of the ways of measuring risk and performance, as well as the Turtle rules for managing risk.

There are no glaring weaknesses to the book that I can detect. Personally, I would have enjoyed a discussion of the pros and cons of trend following at shorter time frames. I also would have liked a discussion of the capital required to properly implement the Turtle approach, given that success derives from holding a diversified portfolio. Those, however, are small quibbles when compared to the book's strengths. The author's chapter elaborating the Turtle method as a life philosophy is, by itself, worth the price of the text.

In short, Curtis Faith has written the definitive book on the Turtle experience and way of trading. It's hard to imagine anyone reading this book and not coming away from the experience impressed with the blend of research and psychological strength that goes into trading success. Readers interested in Faith's work might also check out his blog. See also my take on the psychology of Turtle trading, which dovetails nicely with Faith's.

14 comments:

Steven said...

Once again you beat me to the punch. Good review. Do not know if you saw but I did a quik review of your blog on my site.

http://valueblogreview.blogspot.com/2007/03/blog-review-brett-steenbargers.html

MidKnight said...

Thx for the review Brett. I've heard a few good things about this book from other people too. Just a clarification, in the review you say: "Among the gems provided by Way of the Trader is a discussion of stop loss criteria"

Did you mean Way of the Turtle?

Best regards,
MK

Brett Steenbarger, Ph.D. said...

And you beat *me* to the punch, Steven! I was planning to link your review of my blog tonite on my personal site. Thanks much. I think your idea of reviewing blog and market-related resources is just excellent.

Brett

Brett Steenbarger, Ph.D. said...

Indeed, MK; my bad. I will correct shortly! Thanks for the heads up--

Brett

MIsstrade said...

My copy arrived while away from vacation, I am excited to hear from a real turtle vs Mike Covel on selling the trend!!

Brett Steenbarger, Ph.D. said...

Hi Misstrade,

You might also check out the forum at the Trading Blox site (www.tradingblox.com). Lots of good input from Curtis there, as well.

Brett

Michael Covel said...

I will have to respectfully disagree with Brett's use of the word definitive. I am the only one here who has seen both books:

http://www.michaelcovel.com/archives/000957.html

Brett Steenbarger, Ph.D. said...

Hi Michael,

I don't mind a little smack down every so often! Thanks for the link; I look forward to seeing the Harper Collins volume--

Brett

Robert Babak said...

Dr. Steenbarger,
you beat me to the punch as well!

As a discretionary trader I was a bit reticent but the book is wonderful. My review of Way of the Turtle.

re Covel's book, judging from the quality of his previous publication and based on the fact that he has as much relevance to the Turtles as Paris Hilton, I'm not holding my breath.

Chris Perruna said...

Brett,
I went out and bought the book yesterday afternoon after the write up by you.

I read a large portion last night but had to put it down for my beloved Mets (season opener) but it is excellent.

I am looking forward to finishing it up today and then bringing it with me to Hawaii next week to really highlight and digest.

Thanks for the recommendation and
keep up the excellent blog,
Chris

Brett Steenbarger, Ph.D. said...

Hi Robert,

Thanks for the comment. I'm also a discretionary trader and not at all a trend trader. I do, however, recognize that there are many ways to make money in the markets and that the essential message of the Turtles--the importance of position sizing, diversification, consistency, and risk management--is a most valuable one. As for the apparent bad blood within the trading community re: Turtles, my oh my. Life is just too short for all that. It's that essential message that's important--

Brett

Brett Steenbarger, Ph.D. said...

Hey Chris,

Thanks for the note. Best of luck to those Mets. I'll be interested in your take on the book once you're done. Enjoy Hawaii!!

Brett

Tina said...

I had never heard of trend following, or ever invested in anything besides treasury bonds in my life. But I knew the big returns came to people who had the guts to play the market. I bought Michael Covels book out of curiosity, and I can honestly say that by reading it, I walked away with a better understanding of what trend following is. Its the perfect book for the beginner, but the beginner should not read the book expecting to miraculously know how to be a trend following trader. That would be a foolish assumption on the readers part. Its very inspirational, and easy to read! My advice is to read everyones point of view, then make a decision to take some action in your own personal trading life....but most importantly, don't blame an author ,or anyone for that matter, if you don't or can't get the returns your looking for. Remember, you read a book for inspiraton and some insight.....not for a quick and easy answer to all your hopes and dreams. I'm a regular middle class person and thought my point of view should be heard too.

Michael Covel said...

Brett, I will curious to see your take on my book on the Turtles, 'The Complete TurtleTrader', now that it is out. Drop me an email and I will pass along a copy.