Zero To One (Million): How A Nature Vs. Nurture Experiment Minted A Crop Of Millionaire Prop Traders

Which skills is a person born with, and which skills are learned? It's a question that's besieged historians, economists and all sorts of prognosticators.

In some cases, it’s evident that nature plays a massive role in influencing outcomes. For example, you're far more likely to become a professional athlete if you have a parent who was a professional athlete. Outliers will always exist — National Basketball Association MVP Joel Embiid didn't pick up a basketball until he was 15) — but the path to sports stardom is much smoother if you have genetic advantages.

But what about skills that don't involve physical gifts? Are poker players better if they're descendants of past card sharks? Do successful stock traders raise future stock gurus? That's the question C&D Commodities Inc. Co-Founder Richard Dennis sought to answer with his Turtle Trader experiment. 

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Known as the Prince of the Pit, Dennis made a wager with a fellow investment professional that trading wasn't an inherent trait but a skill a professional could teach. His partner William Eckhardt believed that trading was something only certain people could master. The bet? Dennis would train a collection of inexperienced traders about trend following and provide them with a rules-based system to foment success. And, of course, Dennis chose a nickname for his group of prop trading students: the Turtle Traders.

Dennis ran ads for the experiment in national publications like The Wall Street Journal and The New York Times and selected his participants based on answers to a questionnaire. In total, 23 traders were chosen (21 men and two women) and separated into two groups. The training period lasted two weeks and focused on trend-following strategies in commodities and futures markets. During the training sessions, Dennis preached a rules-based system for use in markets trending up or down, along with some universal investment knowledge you might be familiar with. 

Some of Dennis's critical insights included:

• The trend is your friend: Turtles were taught to follow momentum to the upside and downside. If a breakout occurs, traders should ride the wave up. When momentum fades, traders can bet on a downside reversal.

• Position sizing: Timing on trades always matters but so does the amount of capital at risk. Dennis emphasized larger trades when markets are steady and smaller trades when volatility reigns. Maximum position size should never exceed 2% of the total account value.

• Have an exit plan: Turtles were instructed only to enter a position if they knew the parameters of their eventual exit. Before initiating a position, traders should have profit goals and understand the maximum loss they're willing to endure.

Inquisitive traders can find a complete list of the Turtle Trading rules and training components here. Dennis seeded his Turtles with capital and allowed them to trade independently following the two-week training period. The results? According to one former trader, the group amassed $175 million in total profits, although that number has never been confirmed.

What can be confirmed is the number of Turtles who went on to have successful careers in the investment industry, such as Liz Cheval of EMC Capital Management Inc., Jerry Parker of Chesapeake Capital and Jim DiMaria of JPD Enterprises Inc.

Do you think you have what it takes to be a successful prop trader? The Turtle Trader experiment has long ended, but the idea has been carried forward today through trading challenges. Startups like TopTier Trader have training seminars and competitions similar to the Turtles experiment, where the best-performing candidates gain an opportunity to join the proprietary trading team.