William Eckhardt
53,000% in 13y
Eckhardt's Trading Success
William Eckhardt is one of the longest practicing traders I have studied so far (not investor), his trading career spans over 45 years from 1978 until today. His trading track record is split in two parts. His personal trading from 1978 until 1991 and secondly his trading as a fund manager from 1991 until now.
Under his personal account, William Eckhardt showed impressive average annual gains of 62% from 1978 until 1991, with only one losing year in 1989. At that rate, $10,000 at the start of 1978 would have turned into $5,300,000 in 1991.
Following 1991, William became a fund manager and outperformed the market until 2008. The first 10y after inception, the fund returned an average of +23.96%.
During that time $10,000 invested with Eckhardt would have turned into $86,000.
If you held your investment until the end of 2022, that $10,000 would have compounded into $257,000 or 25.7x.
Timeline
1969
Pursuit of Mathematics William Eckhardt receives a B.A. in Mathematics from DePaul University, marking the beginning of his academic journey.
1970
Mastering Mathematics Eckhardt earns an M.S. in Mathematics from the University of Chicago, further deepening his mathematical expertise.
1974
Transition to Trading After four years of doctoral research in Mathematical Logic at the University of Chicago, Eckhardt decides to embark on a career in trading. He begins trading for his personal account at the Mid America Commodity Exchange.
"I got tired of seeing my students managing hundreds of millions while I was managing comparatively paltry amounts."
The New Market Wizards (page 45)
1978-1991
Personal Trading Success Eckhardt focuses on trading off-floor for his personal account during this period. His analytical and systematic approach to trading proves successful, contributing to his growth as a trader.
1983-1988
Exchange Memberships Eckhardt becomes a full member of the Chicago Board of Trade from 1983 to 1988 and the Chicago Mercantile Exchange (CME) from 1979 to 1986. He also holds other memberships at various times.
1984-1985
Co-development of Trading Systems In collaboration with Richard Dennis, Eckhardt co-develops certain trading systems that would later be taught to the group known as the Turtles. This partnership proves instrumental in shaping Eckhardt's legacy.
1986
Managing Accounts Eckhardt starts managing accounts for a small number of friends and business associates, further expanding his involvement in the trading industry.
1988-1991
Partner of C&D Commodities Eckhardt becomes a partner of C&D Commodities, engaging in futures research and trading administration. This partnership lays the foundation for his future endeavors.
1991
Registered CTA and Transition Eckhardt officially becomes a registered Commodity Trading Advisor (CTA), allowing him to manage accounts professionally. He establishes C&D Commodities, Inc., to continue futures research and trading administration activities
1992
Transition to ETC Eckhardt's partnership with C&D Commodities concludes, and he directs his focus towards the newly formed Eckhardt Trading Company (ETC). This transition represents a significant shift in his career.
1993
Collaboration with John D. Fornengo John D. Fornengo, who has been professionally involved with Eckhardt since 1986, starts working with ETC to assist in the implementation and execution of the ETC trading program.
1995
Vice President of ETC Fornengo assumes the position of Vice President at ETC, solidifying his role in the company's activities.
1999
President of ETC Fornengo's dedication and contributions lead to his appointment as the President of ETC, sharing responsibilities with Eckhardt in guiding the overall activities of the company.
Since 1999, Eckhardt has been managing the ETC with a current Asset under management (AUM) of $181,000,000. During that period, he managed to return an average of 12.13% from 1991 until 2022, outperforming the index by a factor of 2.65%.
Motivation and key moments
In this chapter, we delve into the most important turning points in William Eckhardt's journey, from his early days as a mathematician to becoming a successful trader and partner of Richard Dennis. Despite being relatively unknown to the public, Eckhardt played a crucial role in the formation of the famous Turtles trading group.
William Eckhardt: The Mathematician
William Eckhardt started his career as a mathematician, working towards completing his Ph.D. However, he took an unexpected detour into the world of trading. Intrigued by the analytical approach of systems-based trading, Eckhardt transitioned from academia to the trading floor. He gained valuable experience in the trading industry and honed his skills as a trader.
The Partnership with Richard Dennis
One of the significant turning points in Eckhardt's career was his partnership with Richard Dennis. Dennis, a fellow trader and Eckhardt's friend from high school, joined forces with Eckhardt to test a unique hypothesis: whether trading skills could be taught. This experiment led to the formation of the Turtles trading group.
The Turtles Trading Group
Under the guidance of Eckhardt and Dennis, the Turtles trading group emerged. The Turtles were a diverse group of individuals who were trained in the trading strategies developed by Eckhardt and Dennis. They were taught a systematic approach to trading, emphasizing risk management, position sizing, and trend-following techniques. The Turtles went on to achieve remarkable success, proving that trading skills could indeed be taught.
Funding was given to 14 successful applicants who received between $500,000 and $2,000,000 each.
During the five first years, the group of turtles turned an approximate $7-$28mil intp over $175 million. Dennis had proved beyond a doubt that beginners can learn to trade successfully.
Legacy and Influence
While William Eckhardt may not be as widely recognized as some other prominent traders, his contributions to the trading world are significant. His partnership with Richard Dennis and the formation of the Turtles trading group demonstrated that systematic trading approaches could be taught and replicated. Eckhardt's success as a trader, coupled with his mathematical background and analytical mindset, solidified his reputation as an exceptional trader and mentor.
Eckhardt's unique approach, combining mathematical analysis with personal insight, continues to influence traders and investors to this day.
Trading Approach
Known as a Market Wizard and the Godfather of the popular trend-following trading method, Eckhardt's approach to trading is grounded in risk management and removing human nature from the equation. In this chapter, we will dig into Eckhardt's valuable insights.
Risk Management
"Amateurs go broke taking large losses, professionals go broke taking small profits."
How often have we heard the saying ‘can’t go broke taking profits‘? This is precisely how many do end up losing their stake! One of the cornerstones of Eckhardt's trading philosophy is the significance of risk management. While many traders tend to focus solely on entry and exit strategies, Eckhardt stresses the importance of considering the risks involved in each trade.
Eckhardt suggests implementing risk management measures such as setting stop-loss orders and allocating a limited percentage of capital to each trade. By diversifying across multiple positions and asset classes, traders can mitigate the impact of any individual loss. This approach aligns with the sentiment echoed by other successful traders, such as the legendary Bruce Kovner, who advises risking no more than 2% of trading capital on any trade.
"It's much easier to learn what you should do in trading than to do it. Good systems tend to violate normal human tendencies."
Avoiding Human Errors
Overcoming Emotional Biases Successful trading requires overcoming the emotional biases ingrained in human nature. Eckhardt recognized that human tendencies, such as greed, fear, and the desire for immediate gratification, can hinder trading performance. He believed that emotional makeup was more critical than intelligence when it came to trading success.
Avoiding common advice
The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.
Eckhardt designed mechanized systems to eliminate human decision-making, effectively removing the emotional aspect from trading. He cautioned against the common pitfall of seeking a high success rate, as it often leads traders astray in the long run. Instead, he emphasized the importance of focusing on the overall performance or profit factor, understanding that the success rate of trades is the least important statistic.
Resolve
"The people who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades."
To become consistently profitable traders, we must strive to reduce the impact of emotional biases. Traders should view losses as opportunities for growth, as they strengthen our ability to make better decisions in the future. By acknowledging and managing the pain of losses, we can cultivate the discipline necessary to navigate the markets effectively.
Executing Trades with Discipline and Control
"Don't think about what the market's going to do; you have absolutely no control over that. Think about what you're going to do if it gets there."
Eckhardt advises traders to focus on their own actions rather than trying to predict market movements. Accepting the fact that we have no control over the market's direction allows us to concentrate on developing a plan for different scenarios. This approach ensures that we are prepared to take action when our predetermined conditions are met.
Gains and losses: Emotional balance
In many ways, large profits are even more insidious than large losses in terms of emotional destabilization. I think it's important not to be emotionally attached to large profits. I've certainly made some of my worst trades after long periods of winning. When you're on a big winning streak, there's a temptation to think that you're doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.
A self explaining quote that we all know too well. It is partly the battle for objectivity and stability in our emotions that dictate the amount of success we will perceive in the end.
The emotionally negative game
Investing is a negative game emotionally. If you're playing for the emotional satisfaction, you're bound to lose, because what feels good is often the wrong thing to do. When all the criteria are in balance, do the thing you least want to do.
Investing and trading are negative games emotionally, and what feels good is often the wrong thing to do. Eckhardt urges traders to make decisions based on a balanced assessment of criteria, even if it means doing what they least want to do. This disciplined approach requires detaching oneself from emotional attachments to profits and focusing on the long-term objective of consistent profitability.
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How did the traders table where you compare will's performance to the rest come about? where did you get the data? can we say it is relatively accurate? shine more light on this. To me, it is groundbreaking, it sets the record straight and puts rich dennis as the greatest trader of recent times... tell me more, pls thx
Nice write-up! Henrik