In 1993, Jerry Parker made $35 million and was ranked 25th out of 100 top-paid Wall Street players.The turtle trader breaks down the trend-following strategy that he has used for over 30 years.He shares two current trends he’s watching and two trading rules that he has always followed.If following the rules is easy, then everyone would have made millions 27 years ago like Jerry Parker.
Parker, a top turtle trader trained under Chicago’s trading legend Richard Dennis , made $35 million and ranked 25th on the Financial World magazine’s list of top 100 paid players on Wall Street in 1993, according to Michael W.Covel ‘s book ” The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires .”
Unlike the other financial masters of the universe on the list, Parker, a former public accountant, was just four years out of Dennis’ trader training program, which originated from a bet with his partner William Eckhardt on whether successful traders are born or taught.Dennis, inspired by the turtle-breeding farm he visited in Singapore, nicknamed his students turtle traders.
Dennis, who himself turned a $1,600 loan into a $200 million fortune, thought trading was very much teachable.
As he imparted the secret to his wealth — trend following — to his trainees, he asked for only one thing: be disciplined about following the rules.
“I was a very slow starter and I didn’t do well because I wasn’t following the rules,” Parker, who founded Chesapeake Capital after leaving Dennis’ program in 1988, recalled in an interview.”I mean that’s pretty much the definition of not doing well.”
It was not until December 1984 that Parker was backed into a corner and finally started following the rules.
“I had a great December.
I think I made a few percent that year but some people made 100% that year,” he said.”After that period of doing poorly and then seeing what happens if you just follow the rules, I did very well in 1985 and 1986.”
Million-dollar rules The rules to making millions in trend following are really not all that complicated, but it takes a lot of discipline and strength of will.
Whenever trend followers discern what looks like a trend, they either buy into it or short it.But most of the trades won’t work at first, so they take a small loss.
“We get out with a quarter of a percent loss or half a percent loss, then if it goes right back up, we have to get back in at some point,” he said.”So we are always probing and trying to find these trends but a lot of them don’t turn into trends, they turn into losing trades.”
However, trend followers can manage such risks by trading a diverse set of assets in diverse markets .For example, Parker trades across currencies, commodities, stocks, bonds, and even crypto.In July 2020, he bought bitcoin , which was trading at around $9,000 to $10,000, and held on as it went up to $60,000 before giving back half of the profits in subsequent rounds of sell-offs.
“We still have some bitcoin so this recent rally has been good as well,” he said.
“So maybe the uptrend is still intact in bitcoin, but I welcome these as long as they can add diversification and are liquid.”
Bitcoin was trading at above $40,000 as of Thursday afternoon.
Being systematic with the rules is also crucial because trend followers will definitely have periods of poor performance, Parker said.
During the bull market of the past decade, there haven’t been as many long-term trends in currencies and commodities markets.
Sometimes, Parker had to watch his profitable trades give back their gains.
“It’s very frustrating and I thought I must be doing something wrong,” Parker said.”I think that’s what we are always asking ourselves.Is my system broken, am I doing something wrong, does it need improving.”
Ultimately, his willingness to stomach small losses and let the profits run always pays off, but sticking to a set of rules regardless of circumstances can feel like swimming upstream against human nature.
“It’s really not difficult to get out of a small losing trade, but when you have a big profit and you are letting your profits run, it’s psychologically difficult to watch a large profit turn into a small profit,” he said.
“That’s harder to stomach than just taking these small losses.”
Trends to watch Parker is always probing and trying to identify trends that could take off.A few weeks ago, he got into the coffee trade without knowing that an extreme frost in Brazil’s coffee-growing region, which could harm next year’s crop, would send prices of coffee to a six-year high .
While the coffee trade has slowed down now, he thinks it may have more legs to run and “get a lot bigger.”
Another trend on his radar is cocoa , which has not had a trend for a very long time.
“People can get pessimistic on some of the markets that don’t have good trends,” he said.”So I think maybe cocoa will be a big trend soon since everyone is down on cocoa and the performance of the past 10 years has not been great.”
Check out: Personal Finance Insider’s picks for best cryptocurrency exchanges
Sign up for notifications from Insider! Stay up to date with what you want to know.Subscribe to push notifications.
