There are two rules from this book by which I now live during these later stages of my constitution. First is the tenet “The trend is your friend,” which is repeated often – but not often enough. You sill simply never make any money unless you begin and end every trading thought with that in mind. Second is the old adage actually popularized in the 1880s, as I learned in your annotations: “Sell down to the sleeping point.”
– Paul Tudor Jones
Reminiscences of a Stock Operator Annotated Edition is a new and highly acclaimed book. The original, based on the life of Jesse Livermore, was first published in 1923 and is a favorite, if not the favorite, of just about every trader I know. The new version is annotated with comments and insights about the life and times of Livermore. It also includes an interview with super-trader Paul Tudor Jones. The above quote is from that interview.
Jones has been around about as long as I have. And it’s interesting to me that after all those years of tremendous success and riches it all gets down to two very old fundamental truths: “The trend is your friend” and “Sell down to the sleeping point.”
I have the book on order and I’ll give a review of it after I’ve had a chance to read it. But it’s my understanding that the annotations and the interview with Jones really brings life and great insight to a timeless classic.
Let’s look at what’s going on with the markets and our strategies.
ATR Trading Strategy
Fortunately ATR Trading is 100% in cash and has been for a week. GLD was exited on 12/7/09 at 111.51. It’s now at 105.96 as of Friday’s close. GDX was sold on 12/8/09 at 48.04. It’s now at 40.72. GDXJ was sold twice. The first time on 12/8/09 at 25.72 and the second time on 1/21/10 at 25.66. It’s now at 22.17. AGQ was sold on 1/22/10 at 57.50. It’s now at 51.32. And DGP was also sold on 1/22/10 at 26.23. It’s at 25.68.
With every position we were going with the trend (“The trend is your friend”). But going with the trend doesn’t guarantee a profit. It just makes a profit far more likely. Also, with every position we sized our positions to reduce risk and exited when the intermediate trend signaled a change (“Sell down to the sleeping point”).
The ATR Trading Strategy hasn’t made much money yet. But it has done something just as important. Instead of wondering about what to do with positions that would be under water, we’re in cash and ready for the next trend to develop. And we’ll continue to probe by entering positions that may develop into trends that last weeks or months and, at the same time, getting out with small losses when potential trends turn out to be a false signals. In doing so, we’re going to be wrong a lot. But being right is not what makes money. It’s what you do when you’re wrong that makes money over time.
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