How were the Turtles screened in 1984? One part of the process involved answering the following true-false questions. Assume that trend means uptrend, position means a long, and liquidation means selling.
True or False — With Answers
- The big money in trading is made when one can get long at lows after a big downtrend.
FALSE. Big money comes from riding existing trends, not from picking bottoms. Bottom-picking is prediction. - It’s good to average down when buying.
FALSE. Averaging down adds to a losing position. The Turtle system cuts losses — it never adds to them. - After a long trend, the market requires more consolidation before another trend starts.
FALSE. The system enters on price breakouts regardless. Predicting consolidation requirements is forecasting. - It’s important to know what to do if trading in commodities doesn’t succeed.
TRUE. Having an exit plan if trading fails is prudent risk management that protects capital. - It is not helpful to watch every quote in the markets one trades.
TRUE. Watching every quote increases emotional interference with systematic rule-following. - It is a good idea to put on or take off a position all at once.
FALSE. The Turtle system pyramids into positions incrementally as the trend develops and scales out on exits. - Diversification is better than always being in 1 or 2 markets.
TRUE. Trading many uncorrelated markets reduces portfolio volatility and improves risk-adjusted returns. - If a day’s profit or loss makes a significant difference to your net worth, you are overtrading.
TRUE. If a single day’s move materially changes your net worth, position sizing is too large relative to account equity. - A trader learns more from his losses than his profits.
TRUE. Losses expose what went wrong. Profits may confirm luck. Analysis of losses drives genuine improvement. - Except for commission and brokerage fees, execution costs for entering orders are minimal over the course of a year.
FALSE. Bid-ask spreads, market impact, and slippage accumulate significantly over a year and are a real cost. - It’s easier to trade well than to trade poorly.
TRUE. Following the rules is mechanically simple. Poor trading requires complicated emotional behavior and constant override of correct responses. - It’s important to know what success in trading will do for you later in life.
FALSE. External goals create motivational pressure that distorts real-time trading decisions. Focus belongs on process, not outcomes. - Uptrends end when everyone gets bearish.
FALSE. Uptrends typically end when sentiment is still broadly bullish. The top forms before sentiment turns. - The more bullish news you hear the less likely a market is to break out on the upside.
TRUE. Widespread bullish news coverage often signals the move is mature and already widely known. - For an off-floor trader, a long-term trade ought to last 3 or 4 weeks or less.
FALSE. Trend following trades last weeks to months or longer. 3-4 weeks is too short to capture major trends. - Other’s opinions of the market are good to follow.
FALSE. Others’ opinions are noise. Only price signals drive systematic decisions. - Volume and open interest are as important as price action.
FALSE. Price is the primary input. Volume and open interest are secondary and not required by the Turtle system. - Daily strength and weakness is a good guide for liquidating long term positions with big profits.
FALSE. Daily fluctuations are noise within a long-term trend. Using them to liquidate cuts winners short. - Off-floor traders should spread different markets of different market groups.
TRUE. Spreading across bonds, currencies, metals, energy, and grains provides genuine uncorrelated diversification. - The more people are going long the less likely an uptrend is to continue in the beginning of a trend.
FALSE. In the early stages of an uptrend, broad participation is part of how the trend develops. The system enters on breakouts. - Off-floor traders should not spread different delivery months of the same commodity.
FALSE. Spreading different delivery months can be a valid position management technique. - Buying dips and selling rallies is a good strategy.
FALSE. This is mean reversion, the direct opposite of trend following. - It’s important to take a profit most of the time.
FALSE. Taking profits frequently cuts winners short. The system lets profits run until the exit rule fires. - Of 3 types of orders (market, stop, and resting), market orders cost the least skid.
FALSE. Resting limit orders cost less skid than market orders, which execute at whatever price is available. - The more bullish news you hear and the more people are going long the less likely the uptrend is to continue after a substantial uptrend.
TRUE. After a sustained uptrend, widespread bullishness and crowded longs signal the move is mature. - The majority of traders are always wrong.
FALSE. Trend followers trade with the crowd when entering trends. Broad participation sustains a trend; the majority is not always wrong. - Trading bigger is an overall handicap to one’s trading performance.
FALSE. Trading bigger with correct position sizing and positive expectation increases absolute returns. The handicap comes from overbetting. - Larger traders can muscle markets to their advantage.
FALSE. Even large traders cannot consistently move liquid global futures markets. - Vacations are important for traders to keep the proper perspective.
TRUE. Perspective and psychological reset are valuable. Overtrading fatigue distorts decision-making. - Undertrading is almost never a problem.
FALSE. Failing to take all valid signals reduces the edge the system generates. Undertrading is a significant problem. - Ideally, average profits should be about 3 or 4 times average losses.
TRUE. A 3:1 or 4:1 profit to loss ratio is consistent with positive expectation at a 35-40% win rate. - A trader should be willing to let profits turn into losses.
FALSE. Profits should only be given back to the extent the trailing stop permits. Willingness beyond that destroys the payoff ratio. - A very high percentage of trades should be profits.
FALSE. The Turtle system expects to lose on 60-65% of trades. Expected value, not win rate, determines profitability. - A trader should like to take losses.
TRUE. A trader who has internalized the probability framework recognizes each small loss as the necessary cost of being positioned for the next large winner. - It is especially relevant when the market is higher than it’s been in 4 and 13 weeks.
TRUE. 4-week and 13-week new highs are the Turtle entry signals. These lookback periods are specifically relevant. - Needing and wanting money are good motivators to good trading.
FALSE. Financial desperation creates emotional pressure that distorts systematic execution. - One’s natural inclinations are good guides to decision making in trading.
FALSE. Natural inclinations produce all the behavioral errors behavioral finance documents. Rules exist to override them. - Luck is an ingredient in successful trading over the long run.
TRUE. Luck contributes to short-term results. Skill determines long-run performance but cannot eliminate luck from individual outcomes. - When you’re long, limit up is a good place to take a profit.
FALSE. Limit up is a momentum signal the trend may be accelerating. Exiting there cuts a strong winner short. - It takes money to make money.
FALSE. Small accounts can produce large percentage returns with correct sizing and positive edge. What it takes is edge and discipline, not a large starting stake. - It’s good to follow hunches in trading.
FALSE. Hunches are the natural inclinations the system exists to override. - There are players in each market one should not trade against.
FALSE. In liquid global futures markets there are no specific players to avoid. The system trades price, not counterparties. - All speculators die broke.
FALSE. Many successful speculators compound substantial wealth across careers. - The market can be understood better through social psychology than through economics.
TRUE. Crowd behavior, herding, and sentiment drive price trends more directly than economic fundamentals. - Taking a loss should be a difficult decision for traders.
FALSE. Taking a loss should be automatic when the stop is hit. Difficulty in taking losses converts small losses into large ones. - After a big profit, the next trend following trade is more likely to be a loss.
FALSE. Each trade is independent. The next trade has no memory of the previous one. - Trends are not likely to persist.
FALSE. Trends do persist. Their persistence is the empirical foundation of trend following. - Almost all information about a market is at least a little useful in helping make decisions.
FALSE. Most market information is noise. More information creates more opportunities for cognitive bias to distort decisions. - It’s better to be an expert in 1-2 markets rather than try to trade 10 or more markets.
FALSE. Trading 10 or more uncorrelated markets provides superior diversification. Concentrating in 1-2 markets concentrates risk. - In a winning streak, total risk should rise dramatically.
FALSE. Position sizing remains consistent with the defined percentage of equity. Dramatically increasing risk during winning streaks leads to giving back gains. - Trading stocks is similar to trading commodities.
TRUE. The mechanics of systematic trend following translate across asset classes. - It’s a good idea to know how much you are ahead or behind during a trading session.
FALSE. Knowing your intraday P&L creates emotional noise that interferes with systematic rule execution. - A losing month is an indication of doing something wrong.
FALSE. A losing month is normal variance for any positive-expectation system. It does not indicate a problem. - A losing week is an indication of doing something wrong.
FALSE. Same reasoning. A losing week is normal variance, not evidence of a broken system. - One should favor being long or being short — whichever one is comfortable with.
FALSE. The system goes long or short equally based on price signals. Comfort bias limits returns and introduces directional risk. - On initiation one should know precisely at what price to liquidate if a profit occurs.
FALSE. The profit exit is managed by a trailing stop that moves with the trend, not a predetermined price target. - One should trade the same number of contracts in all markets.
FALSE. Position sizes are volatility-adjusted by market using ATR. A fixed contract count ignores differences in market volatility. - If one has $10,000 to risk, one ought to risk $2,500 on every trade.
FALSE. 25% of capital on a single trade is extreme overbetting. The Turtle system risked 1-2% per trade. - On initiation one should know precisely where to liquidate if a loss occurs.
TRUE. The stop loss level must be defined before entry. This is the non-negotiable prerequisite of every Turtle trade. - You can never go broke taking profits.
FALSE. You can go broke taking small profits while holding large losses. Cutting winners short and holding losers long destroys accounts. - It helps to have the fundamentals in your favor before you initiate.
FALSE. Fundamentals are not required and can distort the price-only decision the system makes. - A gap up is a good place to initiate if an uptrend has started.
TRUE. A gap up during an established uptrend can be a valid entry confirmation of momentum. - If you anticipate buy stops in the market, wait until they are finished and buy a little higher than that.
TRUE. Waiting for buy stops to be absorbed and entering slightly above reduces entry cost by avoiding the initial surge.
What the Quiz Reveals About Trend Following Thinking
The quiz was not a knowledge test. It was a belief test. Dennis and Eckhardt were not screening for people who already knew the rules. They were screening for people whose existing beliefs were compatible with being taught those rules. A candidate who believed averaging down was good strategy, that a high win percentage was essential, or that natural inclinations were reliable guides would be very difficult to teach because every element of the Turtle system would conflict with a deeply held belief.
The questions that most directly identify incompatible beliefs are 2 (averaging down), 33 (high win percentage required), 37 (natural inclinations as guide), 45 (taking losses should be difficult), and 58 (risking 25% per trade). Anyone who answers those five incorrectly holds beliefs that the Turtle system directly contradicts at a fundamental level.
Trend Following Systems
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