Paul Tudor Jones Strategy: Top 10 Rules

Who is Paul Tudor Jones

Paul Tudor Jones was born on September 28, 1954. He graduated in Economics from the University of Virginia where he also became a welterweight boxing champion!

So not only is he beating the markets, he's beating up people at the same time.

Paul Tudor Jones started off his trading career by working for a commodity broker, here Eli Tulis hired Jones and trained him in for trading cotton futures on the New York Stock Exchange (NYSE).

The funny thing is he actually got fired for sleeping at his desk after a night of partying lol!

Now Paul Tudor Jones has put that in the past and actually manages his own firm Tudor Investment Corporation managing over $7 billion in assets.

His strategy and style of trading in this firm focuses on being broad, diverse and including global macro trading which we do here at logikfx too!

So, if you're interested in learning a similar trading style watch our free web class here.

He also mentions that he includes some event-driven strategies and technical systems within his approach.

One of Jones best trades was during Black Monday in 1987. Here he predicted the short tripling his capital by selling the U.S stock markets, earning approximately $100 million!

Overall, Jones is an inspiring trader and fund manager with tonnes of experience under his belt and a strong investment approach following global macro fundamental trading.

Let's take a look at Paul Tudor Jones net worth!

How Much is Paul Tudor Jones Worth?

Overall we know Paul Tudor Jones is worth a lot of money. His net worth was predicted recently in 2019 to be around $5.3 billion by Forbes.

Comparing this to people around the world it would make him 7th highest earning hedge fund manager!

All I know is he was a boxer turn trader and now hedge fund manager philanthropist.

Paul Tudor Jones on Bitcoin Investment

A massive surprise in the finance community was big dog Paul Tudor Jones bought Bitcoin to potentially hedge against inflation in 2020. He mentioned to his clients that he sees it as gold in the 1970s.

This is a complete opposite of how other experienced investors see Bitcoin with many stating it has no value at all.

Paul Tudor Jones made a famous quote that:

"the best profit-maximising strategy is to own the fastest horse".

The interesting point Jones made about bitcoin was that he's nor a hard-money person or a crypto nut. He mentions that the digitization of currency is coming and COVID-19 is speeding this up.

He's not wrong too as China have started the race already by making a digital yuan as legal tender in China.

It's currently being tested in four cities in China which are Shenzen, Suzhou, Xiongan and Chengdu. Even businesses like McDonald's and Starbucks there have required to take it on board.

Could cryptocurrency be the next big thing?

Only time will tell.

Paul Tudor Jones Top 5 Quotes

Quote 1 "When I develop an idea, I pursue it from a very-low-risk standpoint until proven wrong repeatedly, or until I change viewpoint."

This is a really important quote from Paul Tudor Jones. The key point to take away is he never starts off with a large bet or trade. He starts off small until he's proven wrong.

Important to understand if you're looking to minimise your losses.

Quote 2 "I've missed a lot of meat in the middle, but catches a lot of tops and bottoms."

The Paul Tudor Jones strategy and ways of trading not only stocks but forex and other assets is mentioned above.

The key message from this is that Paul Tudor Jones is a contrarian he prefers to get the tops and bottoms correct rather than participate in larger trends (missing the meat in the middle).

It shows that most trading strategies and styles work including Paul Tudor Jones Strategy of being a contrarian and picking reversals rather than continuation of trends.

One of the best ways to trade reversals is first understanding the fundamental value and then timing the market directions with technical analysis and sentiment.

Quote 3 "Key is to play great defence, not great offence."

This quote and rule itself follows from a previous point of risking a low amount until proven wrong. How Paul Tudor Jones trades is always playing the defence.

You won't see Paul Tudor Jones making massive trades or bets.

Rather you'll see him focus on smaller trades but on big moves like reversals.

This is an important quote from Paul Tudor Jones as it mentions that playing defensive will keep you in the game trading, whereas, playing a high risk offense could get you killed.

Quote 4 "Never average losers. Decrease trading size when doing poorly, increase when trading well."

One of Paul Tudor Jones risk management principles is highlighted here. A key message to get from this is that when he's not trading well and losing he will trade with less money rather than more.

This is one mistake traders normally make.

When traders lose and are losing constantly, they try to trade with more to regain their losses. This always ends badly.

Paul Tudor Jones on the other hand does the opposite and risks less when doing poor but more when doing well!

Quote 5 "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."

Paul Tudor jones couldn't have put this any better. If you have an ego when trying to trade you'll fail at trading.

Markets are always uncertain and you have to embrace this, always expect a trade to be wrong.

Many traders will get high from winners that they feel so confident about future price direction. This causes them to over trade and risk too much normally causing them to blow accounts up.

What you want to do is to be humble, expect the worse, prepare for it and minimise the losses. At the same time you want to max your winners.

Paul Tudor Jones 10 Trading Rules

Rule 1 Stay consistent

"Where you want to be is always in control, never wishing, always trading, and always first and foremost protecting your ass".

This shows how Paul Tudor Jones puts a heavy importance on risk management and being able to trade another day.

There's no point wishing your trades will work, instead you want to be consistent in your analysis, strategy and approach.

Don't set yourself unrealistic expectations and over leverage in the market.

Rule 2 Invest, this is not a get rich quick scheme.

"If everyone spent 90% of their time on that, not 90% of the time on pie in the sky ideas on how much money they're going to make, then they will be incredibly successful investors".

The typical retail trader is normally sold a dream of quitting their job and trading full time from anywhere! In reality it's not the get rich quick scheme you're looking for.

Paul Tudor Jones specifically says if people spent 90% more time on actual investing and trading rather than how much money they think they could make then they'd be on their way to being a great investor. Simply put, stop dreaming and start doing.

Rule 3 Know your Maximum Risk:

"The most important rule is to play great defence, not great offence. Everyday 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 draw down".

This is incredibly important for the typical trader to pick up. Everyone has different pain thresholds and risk appetites, but what you always want to be doing is protecting your capital.

This means making sure you're setting stop losses at points where the trade idea is no longer valid and planning out the maximum risk you can put on a single position.

Rule 4 If in doubt, get out:

"If you have a losing position that is making you uncomfortable, the solution is simple. Get out, because you can always get back in."

Many traders out there are always wishing on prices to reach their take profit, even when the price starts moving towards your stop. Paul Tudor Jones specifically mentions if its making you uncomfortable then get out.

If you're getting scared of a trade and you're constantly staring at your P&L then you're probably not trading correctly and should probably get out.

A nice tip you could do to soften losses is to reduce your position size partially as it moves to your stop loss, this way you reduce the overall loss but you can still stay in the trade.

Additionally, following a systematic approach will heavily reduce the emotions in your trading.

Rule 5 Do your homework and know your edge:

"It is not that we had any unfair knowledge, it is just we did our homework. People just don't want to believe that anyone can break away from the crowd and rise above mediocrity"

Do you know if your approach actually has an edge?

To tackle this issue make sure to historically test your strategy and any methods to see if it worked in the past, the more data the better.

Different market conditions can heavily affect how well your strategy can perform.

On top of this make sure you're not just considering lagging information like price.

There's no point back testing a price action strategy as it will never be a leading indicator of price.

Some of the best back tested strategies come from the Global Macro Approach. This uses economic indicators which determines potential future strength or weakness.

Rule 6 Trade turning points for the best risk to reward:

"Everyone says you get killed trying to pick tops and bottoms.. well I have been missing the meat in the middle but i have made a lot of money at tops and bottoms".

Many Hedge Fund Managers actually trade turning points rather than trend trading which follows the crowd. But, how do you know when a turning point will be?

The simple answer is that most traders are told a lie that technical analysis alone can help forecast turning points.

In reality, that's not how the market works.

To increase your odds of turning points you need to incorporate, fundamentals, technical and an overall picture of the market to see if it's truly oversold or overbought.

Using technical analysis alone to trade reversals is nearly impossible due to all the false signs. Using fundamentals with technicals helps filter out the market noise and focus on the right direction then timing it with technical signs.

Rule 7 Trade high volatility and breakouts:

"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".

Most traders out there only stick to the major currency pairs, also known as the most liquid pairs.

What does this mean?

It means they're also the least volatile currencies. So they don't move as much as others.

Paul Tudor Jones specifically mentions to trade high volatility, to work out the volatility you can use methods such as the ATR and work out a trade-able set of currency pairs based on volatility.

Very rarely will you see a large breakout move in very liquid and not so volatile pairs. For example, you're more likely to see breakouts on USDMXN rather than EURUSD.

Rule 8 Always be humble:

"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".

Staying humble and knowing the market gives you opportunities not the other way round is key to waiting for higher odds trades.

If you start to think you're a market wizard and can predict every move, you're going to end up over trading, over confident and unrealistic.

All leading to a loss in capital and confidence.

Always be a humble trader.

Rule 9 Always be alert to what can go wrong:

"I know that to be successful, i have to be frightened. My biggest hits have always come after i have had a great period and i started to think that i knew something".

Winning streaks feel great, but they're the worst mental state to be in. Euphoric trading can get you killed.

Paul Tudor Jones mentions the key to keeping a healthy mindset is to always be alert and never think trades are going to work as his worst losses have come straight after winning phases.

Once you start thinking you know what's going to happen next is when the biggest mistakes will happen and probably the largest losses!

Rule 10 Always Adapt:

"Markets are always changing, you adapt, evolve, compete or die".

Strategies will always have their ups and downs. But the key to consistent growth in the market is to always adapt your strategy.

The markets conditions are always changing, so knowing when your strategy performs well and when it doesn't is important to understand.

One of the great things about the global macro style of trading is that it is adaptable to market conditions. Through economic data we can see or have a good idea about the weakness or strength of an economy and thus currency or stock.

One thing I wish I knew before I traded was to trade using fundamentals rather than just price.

Learn to trade with Logikfx Academy

Take the first steps into growing your value as a trader with our free online courses, webinars, seminars. All from a small team of highly skilled traders with over 15 years’ experience in the financial markets.

Learn how to use powerful tools such as the macro currency strength meter alongside market positioning through a step-by-step COT tutorial - all at your own pace, including interactive exercises, engaging examples, and full support to help you develop your understanding.

What Kind of Trader is Paul Tudor Jones?

Paul Tudor Jones follows a global macro strategy when trading forex. Therefore, he uses a similar approach we use here at Logikfx. When analysing sentiment it's always useful within your trading strategy to analyse the COT report properly. Before this however, making sure you have a fundamental direction using the macro currency strength meter is one of our unique edges in the markets.

These are all crucial steps on how to make money trading forex.

Finally, making sure you can manage your trades using the right trading journal which includes how to set your stop losses and profit targets correctly.

Going beyond forex? Learn about bitcoin here.