Golden Rules by Paul Tudor Jones

​During the next few weeks, I want to have a look into the "golden rules" of famous traders with the idea, to find something they all have in common.

I am starting with Paul Tudor Jones. Here, what I found in Wikipedia about him:

Paul Tudor Jones II (born September 28, 1954) is an American investor, hedge fund manager, and philanthropist. In 1980, he founded his hedge fund, Tudor Investment Corporation, an asset management firm headquartered in Greenwich, Connecticut. Soon after, he created the Tudor Group, a hedge fund holding company that specializes in fixed income, currencies, equities, and commodities.

As of November 2019, Forbes Magazine estimated his net worth to be US$5.1 billion, making him the 343rd richest person on the Forbes 400 and the 7th highest-earning hedge fund manager. He is known for his large-scale philanthropy and, eight years after founding his hedge fund, he founded the Robin Hood Foundation, which focuses on poverty reduction.

The following are quotes I found on the internet:

1) "If I have positions going against me, I get out; if they are going for me, I keep them."

That's the typical "get out of losing trades quickly and let the winners run" advice we've heard very often.

2) "I will keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position when my trading is worst."

Personally, I think this is an important one when it comes to money and risk management. Very often by nature, we might react differently: increasing the lot size when we are losing to "make back" the losses. But we all know, this usually leads to larger losses.

3) "Don't ever average losers."

We have all been there: "I know that I am right and I don't let the market stopping me out of the trade. Better I buy a few more contracts at the cheaper level, then we will see who's right!"

The problem of this "strategy" is, that's working quite often until one day we loose a big chunk of out trading account.

4) "I believe the very best money is to be made at market turns."

That's very different to what we hear by most traders who tell us, that the best money is to be made by not trying to catch market lows or highs. Interesting, isn't it?

5) "When I trade, I don't just use a price stop, I also use a time stop."

In my opinion, a good trade should move immediately into my direction. If not, then my timing was wrong and I better get out.

6) "Don't focus on making money; focus on protecting what you have."

This is an important one to me and believe me, I've been there several times. Losing everything I've made in several weeks in just a few minutes. And I know, you've been there, too.

7) "I look for opportunities with tremendously skewed reward-risk opportunities. You should always be able to find something where you can skew the reward-risk relationship so greatly in your favor, that you can take a variety of small investments with great reward-risk opportunities, that gives you minimum draw-down pain, and maximum upside opportunities."

I like this quote a lot to be honest. In another post he says, that he is looking for a 5:1 win:loss ratio because even an imbecile can make money this way. I love this quote! :-)

8) "At the end of the day, your job is to buy what goes up and to sell what goes down."

Agree! Trading is actually very easy. It is just very hard to do!

9) "You always want to be with whatever the predominant trend is."

Interesting because together with quote 4) it means he is actually looking into different time-frames. A longer time-frame to see the overall trend and a second one to time the turning points (into the direction of the longer time frame).

10) "Don't be a hero. Don't have an ego."

Paul Tudor Jones is known to have huge confidence in what he is doing, but he knows that he can not have an ego when it comes to trading.

He was asked once what makes him such a good trader and he answered: "When I am having a loss, I can put the bad feeling aside almost immediately and keep on trading as nothing happened." I admire such a personality to be honest because losing trades still bother me a lot and it takes some time for me to get my feeling back to neutral.