The Shifting Shares View: What we can learn from multi-billionaire trader Paul Tudor Jones (Part 3)

By James Moore


Following on from Part One and Part Two, Michael Taylor looks at some more pearls of wisdom from multi-billionaire investor Paul Tudor Jones – founder of Tudor Investment Corporation.

Look for opportunities with tremendously skewed reward to risk opportunities

By finding opportunities where one stands to make a great deal more than one loses is exactly what trading all about. Risking one to make two, and being right enough to make money net of fees.

Most people don’t realise that with a 2:1 ratio and being right 55% of the time is a highly profitable strategy. We don’t need to win on every trade and with a ratio like that we can also get more trades wrong than right and still make money.

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.

This is why I love breakouts and breakdowns so much. A price breaking through a range is the price literally telling us that things may be about to change. Trading breakouts, and breakdowns, can be very profitable strategies if one can get the entries right.

The great thing about breakouts is that every stock that ever made a high had to have broken out of a range in order to do so – otherwise it couldn’t have made a new high.

Finding stage three stocks where the price is teetering on support can offer attractive reward to risk opportunities should the stock crack and start crumbling away.

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

Position sizing is key for any trader. Most traders position themselves far too high and then blow themselves up due to poor risk management. The best way is to reduce your positions when losing, because not only does this mean it protects our psychology as we are reducing our losses when trading poorly, but it also protects our account as we are losing less and less each time.

Capital preservation should always be priority, and once you learn how to stay in the game, you can then begin to learn how to make money.

When you are trading size, you have to get out when the market lets you out, not when you want to get out

When the fish are biting – keep feeding. It’s best never to position size oneself too big so that one can’t sell when one needs to, and so when the liquidity is there sometimes it’s best just to take it!

The most important rule of trading is to play great defense, not offense

Trading is not a point scoring game. It’s not like football, or basketball, where the highest points earned by a team wins the game. Trading is about minimising error, and allowing your edge to play out in the market over time.

Pilots aren’t rewarded for reaching their destination ten minutes early. Their job is to reach the destination as safely as possible. That means conducting pre-flight checks. It means making sure everything runs as smoothly as it possibly can.

We mentioned it earlier in the article, about learning to survive and then how to make money. Sadly, most traders never learn how to survive – the attrition rate for trading is huge. By sticking to some of these rules from Paul Tudor Jones, you may find that some of these make all the difference.

Author Michael Taylor’s website contains numerous tutorials on how to trade and invest as well as his free book – ‘How to Make Six Figures in Stocks’.


In this article:

Author: James Moore

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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