Paul Tudor Jones is an investing icon.
Jones shot to fame after he predicted and profited from the 1987 stock market crash.
Now he's one of the highest-earning hedge fund managers in the world.
Here are Jones' secrets for risk management & outperformance:
Jones shot to fame after he predicted and profited from the 1987 stock market crash.
Now he's one of the highest-earning hedge fund managers in the world.
Here are Jones' secrets for risk management & outperformance:
1. Don’t be a hero.
• Remove ego
• Always question yourself and your ability
• Accept that you can never be in full control of the stock market
The only thing one can control- your own actions and reactions to changing market conditions.
• Remove ego
• Always question yourself and your ability
• Accept that you can never be in full control of the stock market
The only thing one can control- your own actions and reactions to changing market conditions.
2. The most important rule of trading is to play great defense, not offense.
Win big when you win, lose small when you lose.
Jones says investors should focus most of their attention on playing a defensive strategy while trading & avoid overtrading and always being on offense.
Win big when you win, lose small when you lose.
Jones says investors should focus most of their attention on playing a defensive strategy while trading & avoid overtrading and always being on offense.
3. You always want to be with whatever the predominant trend is.
One should not argue with this trend as the odds are greatly in their favor while trading in the same direction as the market.
This goes against contrarian thinking but it is more about probabilistic thinking.
One should not argue with this trend as the odds are greatly in their favor while trading in the same direction as the market.
This goes against contrarian thinking but it is more about probabilistic thinking.
4. Losers average losers.
Investors should not buy more into a stock when the price has dropped after their initial buy.
Don't average down, average up.
"When your analysis is proven right, time to back it up with more of your capital," he says.
Investors should not buy more into a stock when the price has dropped after their initial buy.
Don't average down, average up.
"When your analysis is proven right, time to back it up with more of your capital," he says.
5. Assume every position you have is wrong.
It's human nature to search for confirmation after making a decision (confirmation bias).
Do the opposite.
"Only when one can’t convince herself that she is really wrong on a position should she become confident," Jones says.
It's human nature to search for confirmation after making a decision (confirmation bias).
Do the opposite.
"Only when one can’t convince herself that she is really wrong on a position should she become confident," Jones says.
6. Don’t just use a price stop, also use a time stop.
"With a time stop, you can set a specific time frame for a move to happen. When it doesn’t, you cut your position no matter if you’re taking a loss, or are in a small profit. The stock isn’t acting the way as you expected."
"With a time stop, you can set a specific time frame for a move to happen. When it doesn’t, you cut your position no matter if you’re taking a loss, or are in a small profit. The stock isn’t acting the way as you expected."
7. No training or classroom can prepare you for investing, you learn by doing.
You can take all the courses you want, but the best lessons can only be learned by trading with skin in the game in the markets.
You can take all the courses you want, but the best lessons can only be learned by trading with skin in the game in the markets.
8. At the end of the day, your job is to buy what goes up and to sell what goes down.
Keep things simple & understand that this is your main objective.
Price pays, narratives don't.
"I always believe that prices move first and fundamentals come second"
Keep things simple & understand that this is your main objective.
Price pays, narratives don't.
"I always believe that prices move first and fundamentals come second"
9. Evolve or repeat.
Spot your mistakes and adapt.
Dive into what led to you making the poor trade in the first place.
"When you know where it went wrong, you can adapt your approach the next time. By doing that, every trade you take will evolve into a profitable one."
Spot your mistakes and adapt.
Dive into what led to you making the poor trade in the first place.
"When you know where it went wrong, you can adapt your approach the next time. By doing that, every trade you take will evolve into a profitable one."
10. Reduce your position size when trading poorly.
Don't revenge trade or try to bounce back from losses by trading even bigger position sizes.
Take a break and avoid taking major risks until you get back in sync with the market and build your confidence back up.
Don't revenge trade or try to bounce back from losses by trading even bigger position sizes.
Take a break and avoid taking major risks until you get back in sync with the market and build your confidence back up.
11. Look for tremendously skewed reward-risk opportunities.
It's important for traders to analyze the risk-reward ratio for every trade.
With every trade, traders should make sure that the odds of profiting from it heavily outweigh the odds of losing money.
It's important for traders to analyze the risk-reward ratio for every trade.
With every trade, traders should make sure that the odds of profiting from it heavily outweigh the odds of losing money.
12. Have an unquenchable thirst for information.
You cannot pinpoint mispriced assets unless you have an investing edge.
That edge can come from better information and knowledge.
"Intellectual capital will always trump financial capital"
You cannot pinpoint mispriced assets unless you have an investing edge.
That edge can come from better information and knowledge.
"Intellectual capital will always trump financial capital"
13. When things are going your way, give trades the time to develop and let them ride.
On the other hand, when things are not going your way, don't hesitate and sell positions as soon as possible.
"You can always buy back when everything looks strong again," Jones says.
On the other hand, when things are not going your way, don't hesitate and sell positions as soon as possible.
"You can always buy back when everything looks strong again," Jones says.
14. It's OK to watch from the sidelines sometimes.
"First of all, never play macho man with the market. Second, never overtrade. Risk control is the most important thing in trading."
- Paul Tudor Jones
"First of all, never play macho man with the market. Second, never overtrade. Risk control is the most important thing in trading."
- Paul Tudor Jones
15. Capital preservation is key
You will learn more from your losses than from your wins.
"I'm always thinking about losing money as opposed to making money. Don't focus on making money, focus on protecting what you have."
You will learn more from your losses than from your wins.
"I'm always thinking about losing money as opposed to making money. Don't focus on making money, focus on protecting what you have."
There you have it. 15 trading lessons from Paul Tudor Jones.
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If you liked this thread, the best thing you can do to return the value is to retweet the top tweet & follow
@BackpackerFI for insights on-
• Long-term investing
• Passive income streams
• Personal development
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