Lessons from Paul Tudor Jones
-Never play macho man with the market. Never over-trade relative to the equity in your account
-his first mentor has “steel hard emotional control”
-always liquidate half his position below new highs or lows
-after having 60-70% draw-down, he was so depressed he nearly quit. “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
-he then first decided to learn discipline and money management. Become disciplined and business-like about trading
-“Now 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”
-Be quicker and more defensive. Always think about losing money as opposed to making money. He always has a mental stop. If it hits that number, he is out no matter what
-“Risk control is the most important thing in trading” Stop out at near 10% monthly draw-down. He never wants to lose 10% in a month
-Try to picking turning points. Keep trying, but cut position size down if trading poorly (after successive losing trades)
-Don’t ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don’t have control. For example, I don’t risk significant amounts of money in front of key reports, since that is gambling, not trading
-If you have losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start
-The most important rule of trading is to play great defense, not great offense. Every day he has stop risk points for his positions, so he define his maximum drawdown. He spends the rest of the day enjoying positions that are going in his direction. If they go against him, he has a gameplan to get out
-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
-He wants to invest in things that allows him to get liquid “very quickly”
-His investment philosophy is “I don’t take a lot of risk, I look for opportunities with tremendously skewed reward-risk”
-Don’t ever let them get into your pocket – that means there’s no reason to leverage substantially. There’s no reason to take substantial amounts of financial risk ever because 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 should give you minimum draw down pain and maximum upside opportunities
-You’ve got to look at good traders historically. If a trader can on average annually deliver two to three times their worst draw down, then that’s a very good track record, and I’d say that that’s what I try to do. If I thought that for the funds that I managed that 10% would be the worst that I would tolerate in a given year then hopefully I’d annualize two or three times that and that’s probably what I’ve done. Maybe a little below that in the ’90’s and a little above that in the ’80’s.
-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.
-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.
Take-aways: Discipline and risk management is 99% of trading. Don’t ever take substantial leverage or risk. Don’t be a hero. Wait for the fat pitches, don’t gamble, work hard, and have an unquenchable thirst for information/knowledge. Spend your day trying to make yourself happy and relaxed – get rid of losing positions and ride the winners.
Source: Various interviews found on the internet