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20 Trading Insights from Paul Tudor Jones

paultudor1. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

2. 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.

3. 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. Why work when Mr. Market can do it for you?

4. These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates an illusion that there is an explanation for everything and that the primary test is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust price action. The pain of gain is just too overwhelming to bear.

5. There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it.

6. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

7. That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’

8. If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

9. Losers average down losers

10. The concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s? (more…)

Time – Space – Reality – Oneness – Markets

What do the above all have in common? That’s right, “nonlinear” concepts!

It is interesting that one of the great minds of humanity, Albert Einstein spent his time on “nonlinear” concepts such as “time, space, reality, and oneness.” I find it more interesting that the interdependence of these “nonlinear” concepts is what makes a market tick as well.

As a trader, “timing” your trade within the “market” is based on “reality” in relation to the “oneness” of other traders and your outcome is determined by the “space” or movement of your position.

It is my opinion based on consulting with many traders that most traders incorrectly view the markets from purely a “linear” mindset and instead should view the markets from a “nonlinear” mindset as the markets are “nonlinear” themselves.  This is why rigid logical thinkers or “linear intellectuals” find trading the markets so frustrating.  Since they operate from their logical “linear” “beta” mind state, and become frustrated when market behavior does not do what it “should.” This is also why I feel that successful trading has to be both “art” & “science.”

Think about how you approach the markets and to what degree you are a “linear” vs. a “nonlinear” mindset. Also try and remember a trade or trading day where it seemed effortless and you just “let-go” and flowed with the market. In days like these, I’ll bet logical thinking was secondary to enjoying yourself, and selecting trades based on both your trading “tools” and your “intuition” which represents trading the markets as an “art” & “science.” Compare that to days when you where frustrated because the market did not do what it was suppose to based solely on logical assumptions.

Usually fear and greed are by products of logical thinking. Fear and greed are emotions and “nonlinear” in concept, but created by “linear” thinking. Isn’t it interesting that fear and greed are present in the markets and are “nonlinear” as well. Or is it because fear and greed are “nonlinear” and that they are present in the markets?

Maybe the key to a good trading system should be based on how to measure or determine “nonlinear” market events such as fear and greed. The purpose of this article is to have you look at the markets from a “nonlinear” point of view so that you can perhaps “see” market relationships that where invisible to you before.

Paul Tudor Jones Quotes

I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.” …

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” ..

The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.

Ninety-percent of any great trader is going to be the risk control.

When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form.

These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear