Simit Patel

Paul Tudor Jones is a legendary trader -- featured in Market Wizards -- whose approach I'd like to spend a bit more time analyzing here on InformedTrades. There are some extensive videos about him, but they rarely last online before they are taken down for copyright violations; you can find some previous examples, as well as discussions we've had, in our Paul Tudor Jones archive here on InformedTrades.

Below is one video currently on YouTube that features PTJ and his rise to success in the world of trading.


Some take home points:

1. Paul cuts losses short and lets winners ride, always being quick to put losses behind him.
2. He knows it is time to get concerned when he feels at his top and everything is going his wave.
3. "Debt drives the economy," says PTJ. He relies partially on fundamental analysis and his views on debt and its impact help him gauge long-term cycles. They helped him correctly forecast and profit from the 1987 crash in US equities.
4. He is also a big student of Elliott Wave analysis.
5. He uses mental stops for both price and time. Meaning if a price point is reached, he will cut the position and take a loss. Likewise, if an order has not been filled within a given amount of time, it will be closed.

As always, feel free to ask questions or share any insight about PTJ that you may have learned through this video or others about him.

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Luke Myers

Nice find Simit,

This info missed one very important secret about Paul. Paul Tudor Jones was a Trend Follower !!!

Check this Paul quote out:

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. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. 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.

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The price is the smartest one out there.

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Power Broker

My current mentor taught me about mental stops. They can't run what they can't see. You better have some huge balls to trade this way and an iron will. I am working on it now everyday but I still get jammed up every now and then. Today was one of those days! I blew everything I made last week being on the wrong side of it today in ES and ate into my capital by about 2k.

If you are using mental stop loss YOU MUST stick to it or you will surely be doomed.

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Simit Patel

here's a good link with some more quotes from paul tudor jones: The Investment Advice of Paul Tudor Jones | StockTwits U

and here is a video i just made on paul tudor jones meant to summarize some of the key lessons traders can learn from him:

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Simit Patel

also, here is a link to an older blog entry from Don1987 on paul tudor jones: http://www.informedtrades.com/blogs/...e-beliefs.html

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YertleTurtle

I'm curious who your mentor is? I personally feel that mental stops are a terrible idea! The purpose for stops is to protect you from loses. A mental stop doesn't protect you from anything. What if you get disconnected from your broker? What if you leave a position open by mistake? What if you pass out? What if price moves quickly through your mental stop? Not to mention it is very easy to change your opinion of where your mental stop should be as price action unfolds.

I see no advantage to mental stops and I would be wary of anyone teaching them. If the market runs your mental stop - shouldn't you be out of the market? Why not just take your loss and move on?

It is easy to cluster your stop with other traders and have the bigger players run them but that is a discussion about stop placement in my opinion - not about not using them altogether.

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Simit Patel

i agree totally with yertle on mental stops. i think traders like paul tudor jones use them because they are managing such large amounts of money that they can single-handedly create the stop cluster that market makers may want to target. but most individual traders do not have the challenges of managing extremely large positions, and so i think they are better off having the stop in place.

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YertleTurtle

PTJ also has established mental discipline to get out when his stop is hit no matter what. Most traders without decades of experience can't do this - emotions get in the way.

As a side note I believe you should write a trading plan for every trade you take. By doing this before you are in the trade you can write down everything you are going to do before the emotions creep in. This prevents mental mistakes like not taking profit where you originally intended, turning day trades into swing trades and moving trailing stops prematurely.

Trading is about discipline so find a way to hold yourself accountable.

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Power Broker

I did not say mental stops were the right way. I said you must stick to them if you trade this way. And it is much easier to use if you are PTJ and use them when you are trading OPM I'm sure.

As far as being a retail trader and being in an instrument that the best traders on earth trade not to mention contending with algo and HFT I agree with you guys that a SL needs to be in place.

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Simit Patel

here is a quote from PTJ i found on stocktwits that i thought would be worth including in this thread:

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