trade like market wizards

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Paul Tudor Jones

That was when I first decided I had to learn discipline and money management. It was a cathartic experience for me, in the sense that I went to the edge, questioned my very ability as a trader, and decided that I was not going to quit. I was determined to come back and fight. I decided that I was going to become very disciplined and businesslike about my trading.

In the above quote, Paul Tudor Jones is reflecting on a very bad trade that he lost a lot of money on and how it drove him to be more disciplined and focus more on money management. You don’t have to wait until you have a near account-blowout trade (or an account blowout) to start managing your money properly and being disciplined. You can learn from other traders and start treating your trading as a business today.

The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible drawdown. Hopefully, I spend the rest of the day enjoying positions that are going my direction. If they are going against me, then I have a game plan for getting 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. My biggest hits have always come after I have had a great period and I started to think that I knew something.

The above quote talks about how Paul Tudor Jones focuses more on defending his capital and managing risk than on how much money he can make. If you focus on risk first then the profits will tend to take care of themselves. Also, in the second quote, he is talking about how becoming over-confident or arrogant after a series of winning trades is often the kiss of death for traders.

My major problem was not the number of points I lost on the trade, but that I was trading far too many contracts relative to the equity in the accounts that I handled. My accounts lost something like 60 to 70 percent of their equity in that single trade.

In the above quote, Tudor Jones discusses how if you risk too much relative to your account, you can lose almost all, or all of your account on one single trade. So, you’re not alone if you’re losing money, even the pros lost money while they were learning and improving. The difference is, will you learn from your big losing trades or will you continue to make the same mistakes? Pro traders like Paul Tudor Jones and others don’t typically make the same big mistake twice.