21-Trading Rules From Paul Tudor Jones

Hedge fund manager Paul Tudor Jones II is known for his macro trades,particularly his bets on interest rates and currencies. In 1980, he founded Tudor Investment Corporation, which now manages an estimated $11 billion in assets. Jones got his start at his dad’s small business paper, the Memphis Daily News, where he wrote under the name Paul Eagle in high school and college.

He cut his teeth trading cotton futures at the New York Cotton Exchange, under the tutelage of renowned cotton trader Eli Tullis. In 1988, he co-founded the Robin Hood Foundation, with the goal of reducing poverty in New York City.

PTJ is a legendary trader because he’s great at playing defense and neuroticabout protecting his capital. He never pigeonholed himself into a single trading approach but instead uses a multitude of tools; adopting what works and tossing what doesn’t. Through years of studying the tape, he developed an instinctualfeel for price action which allows him to spot turning points in markets and beaggressive at inflection points…

And above all else, even after obviously becoming one of the greatest, he’s still maintained a deep sense of humility in approaching markets which have allowed him to remain mentally flexible and robust…

He achieved this by mastering risk management and consistently chopping off that left tail. This is a key trait of all top traders and investors… and PTJ stands out as one of the best. He learned the critical importance of managing riskthrough the painful and indelible experience of trading and making mistakes.

Here are his trading rules:

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

2. Never play macho with the market and don’t overtrade.

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

4. I will keep cutting my position size down as I have losing trades.

5. Don’t ever average losers.

6. Decrease your trading volume when you are trading poorly; increase yourvolume when you are trading well.

7. Never trade in situations you don’t have control.

I don’t risk significant amounts of money in front of key reports since that is gambling, not trading.

8. If you have a losing position that is making you uncomfortable, get out.Because you can always get back in.

9. Don’t be too concerned about where you got into a position.

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

11. Don’t be a hero. Don’t have an ego.

12. I consider myself a premier market opportunist.

13. I believe the very best money is to be made at market turns.

14. Everything gets destroyed a hundred times faster than it is built up.

It takes one day to tear down something that might have taken ten years to build.

15. Markets move sharply when they move.

16. When I trade, I don’t just use a price stop, I also use a time stop.

17. Don’t focus on making money; focus on protecting what you have.

18. You always want to be with whatever the predominant trend is.

19. My metric for everything I look at is the 200-day moving average of closing prices.

20. At the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?

21. I look for opportunities with tremendously skewed reward-risk opportunities.

PTJ has an aggressive, cut-throat trading style, which is necessary if you want to string together multiple 100%+ years as he did. But what’s extraordinary about this record is the lack of drawdowns. It’s something only a handful of traders have ever accomplished (ie, Druckenmiller, Soros, Brandt).