100 Trading Quotes To Put Into Action And Change Your Life: Paul Tudor Jones on Limiting Pain

Limit pain for smarter swing trades

The trading game is a painful experience for most traders. Base emotions like fear, greed and panic are amplified the second we put on a trade. 

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This is a major problem because trading is a decision makers game. Everything we do requires a well thought out decision. We are not mindless 9-5 cubicle drones. We constantly have to make good decisions in order to make money. 

Here is the problem. To make good decisions we must be at our best. However, trading with our own money on the line puts us at our worst. Fear and greed cause us to do things our logical minds know we should not do. 

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Ever taken yourself out of a great trade early for no reason other than the fear of losing your small profit? That's your brains emotional center limiting pain even when the logical you knows otherwise.

Legendary trader Paul Tudor Jones understood this:

"That cotton trade was almost a deal breaker for me. It was the point that I said, 'Mr. Stupid, why risk everything on one trade? Why not make your life pursuit of happiness rather than pain.'"

Everything Tudor Jones does is an effort to limit pain. By limiting pain, we make better decisions and put ourselves in the best possible position to win. 

Here, Mr. Jones describes how trading too big caused him pain. Many traders fall into this trap. They do not limit risk and position size, and trade too big for their accounts. This type of trading leads to bad decisions, along with sleepless nights.

Other pain causing trading leaks include, but are not limited to watching financial news mongers like CNBC, mindlessly following the Twitterati, chasing stocks, micro-managing positions and trading against the trend.

If you find yourself making bad decisions, do everything you can to limit pain in your trading. At the very least you'll sleep better.

Quote 1: Nehru on Caution as Risk

Quote 2: Bruce Lee on Creating Opportunity

Quote 3: Machiavelli on Risk Management

Quote 4: Michael Jordan on Limits and Trading Scared

Quote 5: Will Smith on the Past, Present and Future

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100 Trading Quotes To Put Into Action And Change Your Life: Will Smith On The Past, Present and Future

In a perfect world you as a swing trader would never look in the rear view mirror, would always be in the now and have a crystal ball that pointed you in the right direction. If it were only that easy.

In reality, many of us can't let the past go, let the present slip by and fear the future.

1. My Story

Let me tell you a personal story. When I first started trading over 15 years ago, I got lucky. It was the late 90's and the dot com boom was in full effect. Without any trading knowledge, I took $5000 and road it to six figures in a very short time. Not realizing I had caught a ride on a once in a lifetime market, I thought I'd found the holy grail.

We all know how this story ends. As the market turned so did my account, and the $120,000 account was down to $50,000 in a matter of days.  Only if the story ended here.

Rather than appreciate the $50,000 I had lucked into, I could not get past the fact that it was once $120,000.  Rather than take that 50K and actually learn how to trade it, I looked at nothing but that $70,000 I had lost.  Every trade I made was an attempt to win back that 70K. I was haphazardly entering positions with no plan, pulling out before targets were hit, and taking loss after loss trading scared.  In essence, novice Paul was living in the past, ignoring the present and fearful of the future.

2. The Quote

I recently came across a wonderful Will Smith quote that encapsulated how I should have looked at my 50K:

Sometimes you have to forget what's gone, appreciate what still remains, and look forward to what's coming next.

To be a successful trader, truer words have never been spoken.

My story is not uncommon.

In my time mentoring dozens of students and speaking with hundreds of traders, I continually come across traders who are constantly trying to make up for losses instead of trading in the moment. What happens when you trade like this? Most likely, you will take trade too big for your account, take bad setups, lose patience, micro-manage positions and constantly fear what happens tomorrow.

3. Trading Application

If you have suffered a big account loss, I want you to do this right now:

Write down that loss on a piece of paper. I'll give you a minute . . .

Now rip up that paper and throw it in the trash. You will never think about that loss again. From this point forward you will be in the present and focus on what you have and what it will become as you focus on the process that will eventually lead you to success.

You will become a winning trader. The 100 Quotes To Put Into Action and Change Your Life Series:

Quote 1: Nehru on Caution as Risk

Quote 2: Bruce Lee on Creating Opportunity

Quote 3: Machiavelli On Risk Management

Quote 4: Michael Jordan On Limits and Trading Scared

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100 Trading Quotes To Put Into Action And Change Your Life: Michael Jordan on Limits and Trading Scared

I forbid any trader I am working with to set this type of trading goal: "I plan to make xxx dollars per month." This is a common goal that almost every trader has made at one time or another in their trading careers. So why should you avoid this goal like the plague?

First, if you have a set dollar amount to make per day, week or month, you will more than likely execute trades you should not take because you are trying to hit your dollar amount. Rarely does pushing trades like this actually get you to your goal. Most of the time you will end up on the losing end of these trades.

Second, and more importantly, setting a dollar goal places a limit on your potential gains. What usually happens when we hit a goal?

We relax. Feeling a sense of accomplishment, the natural tenancy is to pat yourself on the back, work less and take a little mini-vacation.  How many times have you hear a day trader say he hit his daily goal and is taking the rest of the day off? I've seen it too many times.

This trader, once hitting his daily goal (also applies to weekly or monthly goals) effectively places a limit on what he can make.

So why do we set these types of goals? Michael Jordan equated limits with fear:

Limits, like fear, are often an illusion. 

Over the years dozens of traders have told me they set goals/limits because they do not want to lose their hard earned gains. They fear they will give it back. This is a psychological flaw, and the sad thing is they are actually proud of themselves for creating this type of rule.

They are TRADING SCARED, and as Jordan would say, this fear is an illusion.

What if Michael Jordan had set limits on himself?  The Chicago Bulls would not have won 6 championships, he would not be the greatest of all-time and would not be the first billionaire NBA player to own a franchise.

Rather than set a dollar related trading goal, set process related goals.  For instance, every quarter I grade all of my trades A to F.  Win or lose, my goal is always to have straight A's.  Even if a trade was a loss, I can earn an A if the setup was good and I followed my risk and trade management rules.

If you follow a process oriented approach, apply your methodology and never place limits on yourself, in time you will achieve more than you ever dreamed. The 100 Quotes To Put Into Action and Change Your Life Series:

Quote 1: Nehru on Caution as Risk

Quote 2: Bruce Lee on Creating Opportunity

Quote 3: Machiavelli On Risk Management

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100 Trading Quotes To Put Into Action And Change Your Life: Machiavelli On Risk Management

The greatest boxer of our time can't punch worth a lick. So why is Floyd Mayweather one of the greatest boxers of all time?

It is because he is a defensive prodigy. He protects himself. The man is a risk management wizard.

Even the most aggressive leaders understand that you can not go haphazardly into battle with your guns blazing. Before going on the offensive, you must protect yourself. Master strategist Niccolo Machiavelli gave us the following trading quote because he knew that the best offense is a great defense:

Men rise from one ambition to another: first they seek to secure themselves against attack, and then they attack others.

Machiavelli and Mayweather lived by these words, and so should a winning trader. As traders we must protect our capital from those trying as hard as they can to take it away from us.

How do we protect our trading capital? It's actually quite easy if you stick to these rules:

     Always enter a trade with a game plan. I know my entry level, target and stop before entering every trade.
 
     Adhere to strict risk management rules. The amount you risk should always give you a 1:2 ratio in relation to your potential gain.

     Religiously cut losses and let winners ride. Don't settle for small wins and big losses.

     Always seek value when entering a position. Do not chase entries and enter as close to support levels as possible.

     Never risk more than 2 percent of your account on any give trade. Go big or go home does not apply to traders.

When I analyze a setup, before I even consider the target and potential profit, I scrutinize how much I can lose. This is the opposite of what most amateur traders do, and is the biggest reason most traders lose money.

Never forget Machiavelli's trading quote: protect, then attack.

The 100 Quotes To Put Into Action and Change Your Life Series:

Quote 1: Nehru on Caution as Risk

Quote 2: Bruce Lee on Creating Opportunity

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100 Trading Quotes To Put Into Action And Change Your Life: Bruce Lee On Creating Opportunity

Bruce Lee Statue Hong Kong

"This is not a trader's market!"  If you have spent anytime listening to media pundits or traders on social media, you will often find them bashing the market.  They complain about choppy markets, trending markets, overbought markets, oversold markets, stop gunning, unpredictability . . . the list goes on and on.  Heck, I have complained about these negative circumstances in the past.

So what are you supposed to do, put your head in the sand and wait for everything to be perfect?  No, that's not what a successful trader does.  As philosopher Bruce Lee said:

To hell with circumstances, I create opportunities.

Yes, I called the most influential martial artist of all time a philosopher.  In the 100 trading quotes series, you will see at least 5 quotes from him, and he applied every one of them to his own life.  We are talking about a guy who was a world renowned martial artist, philospher, actor, pop icon, teacher, mentor, poet and business man.  He was a true renaissance man.

This is not a biography about that man, so we won't go into details, but take my word that he overcame great obstacles in each of these pursuits.  For example, Lee created the concept of the popular show Kung Fu, but was not cast because of his ethnicity.  The role of an Asian went to a non-Asian.  Bruce did not give up and overcame the negative circumstance for Asian actors by creating his own opportunity and in doing so became a movie legend.

Here is the best example of Lee overcoming circumstance. Not able to find a martial arts style that fit his own athleticism and philosophy, he went out and developed his own marital arts system, Jeet Kune Do.  How is that for creating opportunity?

CREATING OPPORTUNITY IN TRADING

Let's put Bruce Lee's practice to work as traders.  While the market has been hitting all time highs, it's been a choppy ride with uneven market breadth.  This type of market creates havoc for swing traders. We want to see sustained trends.

Okay, so the market stinks for swing traders.  Does that mean we accept less than killer performance?

Hell no!

We dig down and find ways to win.  We create opportunity.  Specific to this choppy market, we ADAPTED our strategy by lowering out targets and taking quicker profits.  We "play the ranges" instead of riding trends.  We look for the setups that are working, like bottoming plays, earnings breakouts and remount setups.  Now we are no longer trapped by negative circumstance and have created our own opportunity for success.

If you want to be a winning trader, you can not be a prisoner of circumstance.  Instead, you knock down doors and create your own opportunity.

100 trading quotes series intro

Quote 1

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100 Trading Quotes To Put Into Action And Change Your Life: Caution Is A Risk

The first quote in the "100 trading quotes to put into action and change your life series" speaks to a specific trader type.  When thinking about risk, we often think of the trader who is impulsive, trigger happy and position sizes much too aggressively.  However, there is another type of risk of which former Indian Prime Minister Jawaharlal Nehru spoke:

The policy of being too cautious is the greatest risk of all.

Let that sink in for a moment.

We generally become conservative to combat risk.  As traders we become overly cautious, decreasing position size, holding out for better trades, sometimes passing on a trade because it is not the perfect setup.  We may use analysis by paralysis taking into account factors that end up having little to do with the setup to justify not taking a trade.

Many traders are proud of themselves when they trade like this. They feel like they've accomplished something by not losing any money.  Well I've got news for these guys.  They will never become anything more than an average "keep up with the market" trader.

Is that why you trade, to keep up with or slightly beat the market?  If so, stop analyzing the markets and just park your money in an ETF.  If you are reading my work, I expect you to kill the market.  You had better expect to make 20-100 percent gains even in down markets.

Now am I saying to throw caution to the wind and trade like a maniac in order to capture big gains?  I think you know my answer.  No, I am not saying that.

Instead, you must trade intelligently aggressive.  When an opportunity arises, you take your shot and make it count. You strike right away and get bigger with your position sizing.  Knowing when to do this comes from careful analysis and stalking of the right opportunities, when "preparation meets opportunity" (this Seneca quote will be one of the "100 quotes later on in the series).

If you are not prepared, you will freeze up.  You will become conservative, cautious and pat yourself on the back for not taking the risk.  Don't be that guy (or gal).

We are winning traders that gameplan, stalk opportunities and strike when the time is right.  We go big, but do so intelligently, still managing risk and strategically managing the trade so it does not hurt too much if wrong.  That's how every successful trader trades.

If you want to be successful, remember that being overly cautious is an "opportunity lost" risk that will keep you from your trading dreams.

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