Trading Nest

Paul Tudor Jones

b. 1954 · Macro: futures, FX, bonds · Known for: Predicting the 1987 crash

Strategy you can use

200-Day Defence-First Trend Filter

Only trade in the direction of the 200-day moving average and obsess over risk: define the loss before you think about the gain.

Style
Macro trend following
Timeframe
Daily
Markets
Indices, FX, bonds, commodities
Level
Beginner

1. Setup

  1. 1Plot the 200-day simple moving average (SMA).
  2. 2Long bias only above it; short bias only below it.
  3. 3Look for a pullback toward the 20- or 50-day MA within that trend.

2. Entry rules

  1. 1Enter when price resumes the trend direction after the pullback (e.g. closes above prior day's high for longs).
  2. 2Target a minimum 5:1 reward-to-risk before taking the trade.

3. Exit rules

  1. 1Stop below the pullback low (longs) or above the rally high (shorts).
  2. 2Exit all if price closes on the wrong side of the 200-day SMA.
  3. 3Scale out at predefined reward targets.

4. Risk management

  1. 1Risk ≤ 1% per trade.
  2. 2Cut size in half after a string of losses; rebuild only after wins.
  3. 3Never let a loss grow because you 'believe' in the idea.

Common mistakes

  1. Fighting the 200-day trend.
  2. Taking trades with poor reward-to-risk.
  3. Increasing size while trading badly.

An educational interpretation of publicly known principles, not the trader's exact proprietary method. Backtest and paper-trade before risking real money. Not financial advice.

The story

Jones began as a cotton trader and founded Tudor Investment Corporation in 1980. His fund is widely reported to have roughly tripled its money in October 1987 by positioning for the crash.

He is famous for his obsession with defence: he has said that he thinks about where he can lose money far more than where he can make it.

Lessons for traders today

  • Defence first: always know your exit before you enter.
  • Use the 200-day moving average as a simple trend filter.
  • Reduce size when you are trading poorly.