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Key Quotes From Paul Tudor Jones in TRADER: The Documentary
Paul Tudor Jones is famous for correctly predicting Black Monday when the Dow Jones Industrial Average dropped by 22 percent in one day. I recently re-watched TRADER: The Documentary, one of the classics in investor education. Wikipedia describes it as:
In the 1987, PBS film “TRADER: The Documentary”. The film shows Mr. Jones as a young man predicting the 1987 crash, using methods similar to market forecaster Robert Prechter.
Although the video was shown on public television in November 1987, very few copies exist. Those that do are hoarded by traders who watch the hourlong movie in the hope of gleaning possible trading tips from Jones. On the Internet, bids for the video start at $295. According to Michael Glyn, the video’s director, Jones requested in the 1990s that the documentary be removed from circulation. The video surfaced briefly on YouTube at the end of July 2009, before being taken down due to alleged copyright violation.
For the past two years, the video has been available here at Tudou, but recently has only been limited to viewers in Asia due to copyright violation. I watched a copy that I had saved to my local hard drive recently with the purpose of transcribing certain portions that I found particularly enlightening.
One theme throughout the documentary is that Paul Tudor Jones and other individuals profiled thoroughly enjoy the act of analyzing financial markets and they are not primarily driven by greed. This is a defining characteristic of investment managers who have reached the top of their profession:
Well I originally decided to come here to be on vacation, getting away from everything. Then as it turned out, a number of the clients are here in Europe, so I’ve been doing an enormous amount of business. I’ve been in Paris, I’ve been in Geneva, so I can combine business with pleasure. I wish it had been more pleasure, but I still wouldn’t trade it for anything in the world. If life ever ceased to be an educational experience, I probably wouldn’t get out of bed.
After a while, the size means nothing. It gets back to the question of whether you’re making a 100 percent rate-of-return on $10,000 or $100 million. It doesn’t make any difference. If you complete 78 percent of your passes, it’d be nice if you were in the NFL, but if you’re in college or high school or even elementary school, I’m sure the thrill is just as great.
Paul Tudor Jones’s intensity and passion is quite apparent throughout as well. The film crew follows him over a course of several months, so viewers are able to see him on a down 5 percent day and an up 5 percent day. Paul Tudor Jones shares some insights on the qualities he values most as an investment manager:
The whole concept of the investment manager making these incredible intellectual decisions about which way the market is going to go — I don’t want that guy managing my money. If he can be that dispassionate, he doesn’t have the competitive nature which is necessary to be a winner in this game. I want the guy who is not giving to panic, who is not going to be overly emotionally involved, but who is going to hurt when he loses. When he wins, he’s going to have quiet confidence. But when he loses, he’s gotta hurt.
To do the job right requires such an enormous amount of concentration. It’s physically and emotionally mandatory that you find some time to relax. And you’ve got to be able to turn it off like that. There will be times though that I get so incredibly excited about a trade or even a project that I’ll wake up at 4 o’clock in the morning and there’s no way in hell that I’m going back to sleep. I’ll sit there in my dreams and trade for four hours. (more…)
Great reminder.
What Not to Do-What to Do
What Not to Do
- Have an opinion. One sure way to find yourself trading against the market is to have a market opinion. Trading with a rigid belief about what the market will do next can limit your ability to see what the market is actually telling you.
- Have someone else’s opinion. Adopting some market guru’s market opinion is actually worse than having your own. Market gurus are notoriously inaccurate in their predictions. Embracing another’s market judgment prevents you from learning to read the market on your own. Besides, it’s doubtful the guru will be texting you to let you know when his or her opinion has changed.
- Make your opinion public. Putting your bias into a chat room or forum thread makes it public. Making something public gives it a psychological life of its own. It’s hard to back off an opinion once you have announced it to others.
- Let your ego get involved. Everyone wants to be right. In trading, learning to accept being wrong and the losses associated with being wrong is a big part of the game. This is no place for big egos.
- Ride a loser. Still wanting to be right? Having a bias, making it public, and getting your ego involved will cause you to hold losers far longer than you should.
What to Do
- Anticipate. Avoid having an inflexible bias. Identify areas where the market might turn, break out, or continue, and think through what that would look like. Anticipate the alternative ways the market may trade. When you see the market trading as anticipated, you already know what to do.
- Keep your own counsel. Avoid gurus. Jesse Livermore viewed trading as a “lone-wolf” business, and it is. Learn to read the market and make your own decisions.
- Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
- Check your ego. Be aware of when you want to be right. Ask yourself, “What is more important, being right or making money?” Then, make the correct decision.
- Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.
8 Steps for Traders
1. Find Your Strength. It is important that the trader determine what type of market, trending or consolidating, best suits their own personality and strength. The best traders stay focused on one or the other and master it.
2. Know Your Market. You should know your market when trading. In other words, know the levels of support/resistance; know how the instrument you trade moves with the general market; know who is likely to be on the other side and what they are thinking; and “the terrain of any market includes the “long-term charts”
3. Prepare Your Order. Know when to get into a trade and why and know when to get out of a trade and why. Just like a secret agent who will “never enter a room without knowing how to get out of it in a hurry”
4. Placing Your Order. Once you have adequately prepared for a trade, it is then necessary to be ready to place the trade when the time is right. Here “patience is the key…you must be able to wait for the market to tell you when the moment is right. Wait for the market to generate the action; don’t force it”
5. Sticking With Your Plan. This is probably the hardest part about trading. Once you enter the battlefield (enter a trade), the emotions of fear, ecstasy, greed, and sheer excitement can then take over and cause you to forget your well prepared plans for entry and exit. You must enter a “Zen-like mental state” where you remain in control of your emotions. Not doing so could spell disaster.
6. Identify When You Are Wrong. “It is crucial to your survival to identify in advance whether your view might be wrong and to determine what price level, when broken, would be in support of the consensus view; therefore, you are building up your ability to defend the occasional probes against you”
7. Holding On To Your Winning Positions. Set a trailing stop when your trade is moving in your direction thereby locking in profits while allowing the trade to work toward its maximum potential. “A trailing stop loss keeps you in the war, keeps you in tune with the war, and, most important, leaves you in full readiness to instantly strike again”
8. Focus On Your Next Trade. This is the most important step and is saved for last. This step simply says to start anew with each new trade. No matter if you won, lost, or broke even on the last trade, the next trade is a new one. “You do indeed need to be starting every single trade fresh and alert without any baggage from the previous encounter”
HOW TO LOSE MONEY IN THE STOCK MARKET
There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.
According to Mark Douglas…
In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.
There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).
From Chapter Four of THE DISCIPLINED TRADER
Bottom line: successful trading is about making money…not about being right.
Being disciplined
This is probably the most recurrent concept mentioned in trading literature, but what does it mean exactly? “Discipline is any training intended to produce a specific character or pattern of behaviour, especially training that produces moral, physical, or mental development in a particular direction”*, i.e.: to be disciplined you need a specific set of rules to follow. Without rules, discipline is an empty concept!! In order to be disciplined, a trader first needs to set the rules that he will need to follow. Here we come back to the necessity of first working out a methodology, and then applying the rules to make the most out of it. This is usually called the “Trading Plan” and it is the foundation of any successful trader. Many would-be traders find it hard to write down a specific trading plan since it is very far from the typical “easy money” illusion that many people have about trading. Being able to articulate a precise, step-by-step plan is the result of intensive (more…)
Perseverance
It is very important to give yourself a realistic time frame when you are testing new systems or new markets.
Ask yourself:
- Do I get disappointed easily?
- How do I deal with my disappointments?
- Do I get mad and frustrated and let my emotions dictate what I do?
- Do I get out of the game?
- Do I play the blame game?
- Do I examine what I did and tweak things to make them better?
- Do I do a combination of all the above?
- Do I jump from one strategy to another without giving it a fair chance?
“Success is never final, and failure is never fatal; it’s courage that counts.”
Bitter Truth
