4 lessons from a trading legend: Paul Tudor Jones
(92% of traders need to read this…)
(92% of traders need to read this…)
1. Don’t lose money
“…at the end of the day, the most important thing is how good are you at risk control. Ninety percent of any great trader is going to be the risk control.”
“…at the end of the day, the most important thing is how good are you at risk control. Ninety percent of any great trader is going to be the risk control.”
PTJ has an aggressive, cut-throat trading style, which is necessary if you want to string together multiple 100%+ years as he did.
But what’s extraordinary about this record is the lack of drawdowns.
But what’s extraordinary about this record is the lack of drawdowns.
It’s something only a handful of traders have ever accomplished (i.e, Druckenmiller, Soros, Brandt).
He achieved this by mastering risk management.
This is a key trait of ALL top traders and investors…
He achieved this by mastering risk management.
This is a key trait of ALL top traders and investors…
He learned the critical importance of managing risk through the painful and indelible experience of trading and making mistakes.
As author Brian McGill wrote, “We are never taught more deeply and more truthfully than by pain.”
As author Brian McGill wrote, “We are never taught more deeply and more truthfully than by pain.”
PTJ has mentioned that when hiring traders he prefers those who have blown up accounts and suffered the pain of large losses.
These traders have had risk management seared into their very being.
These traders have had risk management seared into their very being.
2. The importance of asymmetry
So much of successful trading consists of finding the right balance between risk management and betting big on the juiciest opportunities.
This is one of the most difficult questions a trader is forced to constantly grapple with.
So much of successful trading consists of finding the right balance between risk management and betting big on the juiciest opportunities.
This is one of the most difficult questions a trader is forced to constantly grapple with.
There are no perfect answers.
A trader should always err on the side of capital preservation over profit maximization.
An important tool in rectifying the capital preservation/profit maximization dilemma is the understanding and implementation of asymmetry in trading.
A trader should always err on the side of capital preservation over profit maximization.
An important tool in rectifying the capital preservation/profit maximization dilemma is the understanding and implementation of asymmetry in trading.
Profitable trading is about finding and creating positive asymmetry.
Positive asymmetry is when potential gains are multiples of potential losses.
The greater the positive multiple, the greater the asymmetry.
Positive asymmetry is when potential gains are multiples of potential losses.
The greater the positive multiple, the greater the asymmetry.
A trader should always be thinking in this fashion of potential risk weighted against potential reward (risk/reward).
3. Be a slave to the tape
PTJ has an uncanny knack for reading the tape (price action) and getting a feel for where markets are going.
A product no doubt of the era in which he came up, where information was scarce and the tape was the primary signal and information source.
PTJ has an uncanny knack for reading the tape (price action) and getting a feel for where markets are going.
A product no doubt of the era in which he came up, where information was scarce and the tape was the primary signal and information source.
Since the market always knows more than you do, a trader has to respect price above all else.
“I see the younger generation hampered by the need to understand and rationalize why something should go up or down...
“I see the younger generation hampered by the need to understand and rationalize why something should go up or down...
Usually, by the time that becomes self-evident, the move is already over.
When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart…”
When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart…”
4. Stay frightened and be emotionally detached
The evolution of a trader generally follows the progression of moving from simplicity
to complexity
to informed simplicity.
The goal is to build up your knowledge base, find what works, and strip yourself of what doesn’t.
The evolution of a trader generally follows the progression of moving from simplicity
to complexity
to informed simplicity.
The goal is to build up your knowledge base, find what works, and strip yourself of what doesn’t.
Da Vinci was right when he said “simplicity is the ultimate sophistication”.
Many traders hide their ignorance with complex models, indicators, and theories filled with big words but of little value.
Many traders hide their ignorance with complex models, indicators, and theories filled with big words but of little value.
PTJ is a legendary trader because he’s great at playing defense and neurotic about protecting his capital.
He never pigeonholed himself into a single trading approach but instead uses a multitude of tools; adopting what works and tossing what doesn’t.
He never pigeonholed himself into a single trading approach but instead uses a multitude of tools; adopting what works and tossing what doesn’t.
Through years of studying the tape, he developed an instinctual feel for price action which allows him to spot turning points in markets and be aggressive at inflexion points…
“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”
TL;DR
1. Don’t lose money
2. The importance of asymmetry
3. Be a slave to the tape
4. Stay frightened and be emotionally detached
1. Don’t lose money
2. The importance of asymmetry
3. Be a slave to the tape
4. Stay frightened and be emotionally detached
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Thanks for reading!
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Make sure you follow me @Trader_Theory for more epic content on creating financial freedom through trading.
Also, if you found this valuable be sure to like and retweet the original post of this thread to help others. Thanks 👇
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