Paul Tudor Jones II is one of the most successful hedge fund managers. He has never suffered a losing year. His fund has returned 23% annualized gain since its inception in 1986. Paul Tudor is a momentum trader, who believes that price move and trend unfold only because of investors’ behavior. 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. 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. 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. 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. |
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rssPaul Tudor Jones – 60 Minutes Interview
Jones is considered one of the best traders in the business for one main reason: CONSISTENCY!He has produced positive returns for 25 straight years! I don’t know the exact number of years, but you get my point. The fuel behind his consistency is his discipline, specifically his ability to manage risk and cut losses.
Besides his tremendous success as a trader and a hedge fund manager, what makes Jones an even bigger hero in my view is his philanthropy. I love the phrase “The secret to living is giving” and Jones truly exemplifies this quote. In other words, what’s the point of being successful if you never give back to others? As Jones says in this 60 Minutes interview: “You find your joy in life through service and sacrifice.” Enjoy the video!
Trading Wisdom – Paul Tudor Jones
Paul Tudor Jones
Turned $1.5 million into $300 million in five years
“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?”
I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading. I spend my day trying to make myself as happy and relaxed as I can be.
If I have positions going against me, I get right out; if they are going for me, I keep them. I am always thinking about losing money as opposed to making money. Risk control is the most important thing in trading. I keep cutting my position size down as I have losing trades.
Advice from Paul Tudor Jones
Paul Tudor Jones Trend Following Wisdom
Paul Tudor Jones was featured in Market Wizards and is one of the successful trend followers. In the Market Wizards book there are some interesting quotes & trading tips that are important for all stock traders & trend followers.
Quoting Paul Tudor Jones
“I become quicker and more defensive. I am always thinking about losing money as opposed to making money.”
“Risk control is the most important thing in trading.”
“Don’t be a hero”.
“Don’t have an ego.”
“Always question yourself and your ability”.
“I am more scared now that I was at any point since I began trading, because I recognize how ephemeral success can be in this business. I know that to be successful, I have to be frightened. My biggest hits have always come after I have had a great period and I started to think that I knew something.”
“One of my strengths is that I view anything that has happened up to the present point in time as history. I really don’t care about the mistake I made three seconds ago in the market. What I care about is what I am going to do from the next moment on. I try to avoid any emotional attachment to a market.”
“I never apologize to anybody, because I don’t get paid unless I win.”
“When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”
“Advice: don’t focus on making money; focus on protecting what you have.”
“Trading gives you an incredibly intense feeling of what life is all about.”
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.
Risk Size Is Key
YOUR WINNERS CAN RUN….IF YOU LET THEM
The proponents of risk/reward ratios say that in order to be successful the trade must out produce the amount of money you have at risk by at least double or triple your risk amount but what they fail to take into consideration is that the reward side of any trade is unknown.
WHAT YOU CONTROL
You see the only part of the trading equation that you have any control over is the risk side of the trade. The reward side of any trade is a complete mystery. Oh sure, we all have our best guesses as to where the market might go next, but in the end it’s really just a crap shoot. Sometimes we’re right and sometimes we’re wrong and if we’re honest with ourselves we will admit that we really don’t know where the market is going next.
If we don’t really know where the market is going, namely the reward side of the trade, why would we even include it in our trade scenario never mind making it the deciding factor of whether to take a trade or not? Obvious, right? Yet in spite of this I continue to encounter traders who insist on only taking high risk/reward trades thinking that they are being smart investors by doing so. (more…)
Paul Tudor Jones: The Secret To Successful Trading
“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. Because I think there are certain situations where you can absolutely understand what motivates every buyer and seller and have a pretty good picture of what’s going to happen. And it just requires an enormous amount of grunt work and dedication to finding all possible bits of information.
You pick an instrument and there’s whole variety of benchmarks, things that you look at when trading a particular instrument whether it’s a stock or a commodity or a bond. There’s a fundamental information set that you acquire with regard to each particular asset class and then you overlay a whole host of technical indicators and that’s how you make a decision. It doesn’t make any difference whether it’s pork bellies or Yahoo. At the end of the day, it’s all the same. You need to understand what factors you need to have at your disposal to develop a core competency to make a legitimate investment decision in that particular asset class. And then at the end of the day, the most important thing is how good are you at risk control. 90% of any great trader is going to be the risk control.”
Paul Tudor Jones on Jesse Livermore
One of the greatest trading books ever written is Reminiscences of a Stock Operator. The original book was published in 1923, but in 2010, an Annotated Edition was produced by Jon Markman. This edition reveals the truth about Jesse Livermore and provides colorful, historically accurate commentary on the characters, places, and events that have made Reminiscences such an enjoyable and educational read for generations.
The foreward to the Annotated Edition is written by legendary trader Paul Tudor Jones. At the end of the book, Jones answers a few questions about his relationship with the book and its themes. Here is one of the insightful questions that was asked to Jones. I found a profound meaning in his response. I hope you discover it as well.
Question: Part of the appeal of the book is Livermore’s journey of self-discovery as a person and as a trader. Have you had the same experience as a trader and portfolio manager, or was your path easier or harder?
Jones: Probably the best lessons to be learned from this book come from his repeated failures and how he dealt with them. In the book I think he lost his entire fortune four or five times. I did the same thing but was fortunate enough to do it all in my early twenties on very small stakes of capital. I think I lost $10,000 when I was 22, and when I was 25 I lost about $50,000, which was all I had to my name. It felt like a fortune at the time. It was then that my father flew up from Memphis and sat me down in my New York City apartment and began lecturing me as lawyers do. He commanded, “Leave the gambling den behind. Come home and get a real job in a safe profession like real estate.” Of course, I did not, and the rest is history. And real estate these past few years has been about as safe as shooting craps to pay the rent, so I was twice blessed. If I’d have taken my father’s advice, I might have lost all of my money again these past few years in my fifties. (more…)
Wisdom of Market Wizards
“Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don’t stay with your winners, you are not going to be able to pay for the losers.” – Michael Marcus
“The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts.” –Bruce Kovner
My take – Most commons are pennants and flags. And most obvious failed outbreaks are candles ended with the close below the intended trendline.
“The most important rule is to play great defense, not great offense. Everyday I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.”
“… I believe the very best money is to be made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops. If you are a trend follower trying to catch the profits in the middle of a move, you have to use very wide stops. I’m not comfortable doing that. Also, markets trend only about 15% of the time; the rest of the time they move sideways.”
“Don’t focus on making money; focus on protecting what you have.”
–Paul Tudor Jones (Big Big Big Fund Manager)
“The most important is discipline – I am sure everyone tells you that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courafe to go into the market, and courage comes from adequate capitalization. Fifth, you need a strong desire to win.”
“You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally.” –
Gary Bielfeldt
Veneziani, The Greatest Trades of All Time
Vincent W. Veneziani’s The Greatest Trades of All Time: Top Traders Making Big Profits from the Crash of 1929 to Today (Wiley, 2011) is not the greatest trading book of all time. The problem is that most of its material is readily available in greater detail elsewhere. For instance, if you want to read about John Paulson’s subprime short, the obvious source is The Greatest Trade Ever by Gregory Zuckerman. Or why read ten pages about Jesse Livermore when we have Reminiscences of a Stock Operator? The only original material comes from the author’s interviews with Kyle Bass and Jim Chanos.
For those who are new to trading, however, this book provides an introduction to some icons of the business and their winning trades. Featured, in addition to Livermore, Paulson, Bass, and Chanos, are Paul Tudor Jones, John Templeton, George Soros, David Einhorn, Martin Schwartz, and John Arnold. The final chapter deals briefly with Phillip Falcone, David Tepper, Andrew Hall, and Greg Lippmann.
Each chapter has a life of its own, but all conclude with very brief sections that recreate the person’s trading strategies and his top traits. For instance, we read that “Jones’s brazen utilization of Elliot [sic] wave theory is legendary.” (p. 43) Jones was not a wave counter; rather, he embraced Elliott’s notion of repeating cycles. The author shows a chart overlaying data from 1982-1986 on 1932-1936 data and notes the striking correlation. Jones “extrapolated a time period with a high correlation and began making investments as if he were living in the past with a roadmap to the future” (p. 38), a technique that was chronicled in the 1987 PBS documentary about him. (Despite the best efforts of Jones and his lawyers, the film is still available online.) Veneziani also notes that “Jones helped define the cliché Wall Street traits that much of the industry and its participants attempt to emulate today.” (p. 44) Among them: intensity, keeping a comprehensive viewpoint, and having a methodical approach. (more…)