Sunday Special: Art of War & Trading
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Trading is nothing less than a war. Think about it. In every trade that gets executed, for every buyer there is a seller and vice-versa for every seller there is buyer. And In any trade there can be only one winner.
This ancient military book Sun Tzu's 'Art of War' was originally written to provide a strategy in war, but fundamentally the pieces of advice in there can be applied in any other field. There are many great principles in Sun Tzu's writings. Here are few examples of his timeless wisdom applied to trading
Lesson No 1
“Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”
So does in trading & investment, we have limited capital and we have to calculate. Calculate what your risk is, what is your reward potential. What are the odds & Probability of winning? Calculate whether it is worth taking the risk.
Do your calculations beforehand. Identify levels beforehand and when you see those levels, be prepared to execute your plan.
Lesson No 2
“To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.”
As a trader you need to protect your capital. Identifying levels of risk and reward before you enter the trade & sticking to your trading rule is very much in your hand. But is direction of market in your hands. Do you have the vitamin “M” to control the price movement? That’s my point - the movement of price happens when others trade. And that is something which is not in our control. Remember, we can predict but not control. When you get it right stay humble & when things don’t work, accept it and move on…
Lesson No 3
Whoever is 1st in the field & awaits the coming of the enemy will be fresh & better prepared for the fight. Whoever is 2nd in the field & has to hasten to battle will arrive exhausted
This does not mean you have to be the first to trade at 9:15 am. Rather those traders are more likely to win who keep patience & wait for the opportune moment. He / She waits for his / her identified levels to come & only when they see price trading at their level will they enter the trade.
"The general unable to control his irritation will launch the assault like swarming ants. Result 1/3rd of his men is slain, while the town still remains untaken. Such are the disastrous effect."
In market too, if you are not able to control your emotions, if you are not in the right frame of mind, and you still trade you would be more prone to make mistakes. Remember, you need to have a calm mind and look at the market objectively to be be able to trade with discipline.
Lesson No 4
"Thus if you make forced marches without halting day & night, covering double the usual distance at a stretch, doing a lot more extra, in order to wrest an advantage, the leader in such cases will fall into the hands of the enemy"
Another common mistake that a trader can make is over-trading without following a proper trading plan especially to cover-up losses made earlier in the day. Be honest to yourselves and ask how many times have you traded excessively praying & hoping that this trade covers up your losses. When you trade with this mentality where is the focus. It is not on the levels, it is not on understanding risk & reward. In short you are not focusing on the process nor on the end result. It is like driving a car with your eyes focused on rear view mirror. Trade only & only if setup fits your criteria. Only if you see risk:: reward ratio of 1::3 or better. And only if you are prepared to face & accept the outcome.
5 dangerous faults which may affect a general
i. Recklessness
ii. Cowardice
iii. Hasty temper
iv. Delicacy of honor
v. Over-solicitude for his men
To summarize in trading too, the reason for failure will be one or a combination of above mentioned points.
- Recklessness leads to destruction
- If you are too afraid, more often you will have a feeling of regret
- Revenge trade will again make you lose your focus & your money.
- Fear of what other people will think of you can close down your thinking & mind
- If you are too attached to your trade / your position; thinking that you cannot be wrong. This thought process will expose you to worry and trouble.
Now that we are aware of what should be avoided, let us look at what things can lead to winning trades.
There are 5 essentials for victory
1. He will win who knows when to fight & when not to fight
2. He will win who knows how to handle both superior & inferior forces
3. He will win whose army is animated by the same spirit throughout
4. He will win who, prepared himself, waits to take the enemy unprepared
5. He will win who has military capacity & is not interfered with by the sovereign
1. In trading a trader has to understand when the market conditions are favorable to trade and when he should avoid trading. We do not want to be fighting all the time because war & fights demand lot of resources. In trading too, it is not necessary to trade every price movement. It can take a toll on you and can be very stressful. Especially when you buy and market goes down and then you reverse the trade and market goes up. If I have to share my experience in my early trading days, I have had days where I traded like crazy doing 15-20 intraday trades in Nifty but eventually ended either on losing side or ended up paying heavy brokerage fees that effected my profitability in a big way. That did teach me a lesson. Be more selective. I have cut down my trades drastically and now some of my best trading days have been when I have not traded at all but just observed patiently from sidelines allowing my positions to take shape.
2. In trading terms superior and inferior forces could be related to primary trend and corrective trade. Understanding of primary and corrective stage can help a trader decide on his / her potential target, size of potential target (eg 3,/ 5%, 10%, 20%) and accordingly place a Stop loss.
3. It is important for a trader to have the confidence and have same energy and drive when he / she enters the trade. There are times when a trader might go through a losing streak. Even in cricket players like Shikhar Dhawan/ Rohit Sharma go through a lean patch. Sometimes they get dropped out from team too. But they refocus & fight back.
Similarly you need to analyze what is causing a losing trade.
a. Are trading rules being followed
b. has the underlying market condition changed and trading plan does not work the same way in changed conditions. [Rishab Pant for instance was a hit in Indian conditions (excellent in IPL) but struggled overseas when pitch & weather conditions changed] A trader can either acknowledge change and work and improvise his strategies or can focus on his core strength and allow time to re-enter till conditions realign to his strengths
4. As a trader one has to do his / her homework. Spend time in analyzing beforehand. The trading time should be for execution of plans. Identify levels beforehand & initiate trade when that level gets triggered.
Here is an example of identifying levels beforehand.
5. When it comes to trading (which is one of the hardest way to make easy money ;-) , a trader has to identify what are the sovereigns in his or her life that is interfering with his or her trading decisions.
a. A spouse that is not supportive. Complaining about the risks and making lots of problems that interfere with the emotional stability of the trader.
b. Family members who do not understand the realities of a stay at home trader or
c. Work demands at your existing office
Trading like warfare requires intense skill and concentration.
If a "sovereign" interferes with your trading or investing, it is time for you to take hold of the problem and deal with it accordingly.
Have a heart to heart talk with your spouse or family member and help them to understand the demands and responsibilities of a self directed trader/investor. Through honest discussion, they may be able to give you the freedom and time needed to work.
If trading interests you but are working somewhere which demands a lot, then work on trading strategies where you can do justice to both.
If you are trading from home, have a separate room where you operate. No one should enter or disturb you when you are there unless for very important issues.
There is a lot more to learn. There is no recipe to make quick money in this book, but it’s a book I strongly recommend every trader & aspiring trader should read who want to develop their mentality aspect and want to bring in discipline in their trading pattern. which I believe is very important in trading.
All the best.
Be strong be safe...!!!
Trading is nothing less than a war. Think about it. In every trade that gets executed, for every buyer there is a seller and vice-versa for every seller there is buyer. And In any trade there can be only one winner.
This ancient military book Sun Tzu's 'Art of War' was originally written to provide a strategy in war, but fundamentally the pieces of advice in there can be applied in any other field. There are many great principles in Sun Tzu's writings. Here are few examples of his timeless wisdom applied to trading
Lesson No 1
“Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”
So does in trading & investment, we have limited capital and we have to calculate. Calculate what your risk is, what is your reward potential. What are the odds & Probability of winning? Calculate whether it is worth taking the risk.
Do your calculations beforehand. Identify levels beforehand and when you see those levels, be prepared to execute your plan.
Lesson No 2
“To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.”
As a trader you need to protect your capital. Identifying levels of risk and reward before you enter the trade & sticking to your trading rule is very much in your hand. But is direction of market in your hands. Do you have the vitamin “M” to control the price movement? That’s my point - the movement of price happens when others trade. And that is something which is not in our control. Remember, we can predict but not control. When you get it right stay humble & when things don’t work, accept it and move on…
Lesson No 3
Whoever is 1st in the field & awaits the coming of the enemy will be fresh & better prepared for the fight. Whoever is 2nd in the field & has to hasten to battle will arrive exhausted
This does not mean you have to be the first to trade at 9:15 am. Rather those traders are more likely to win who keep patience & wait for the opportune moment. He / She waits for his / her identified levels to come & only when they see price trading at their level will they enter the trade.
"The general unable to control his irritation will launch the assault like swarming ants. Result 1/3rd of his men is slain, while the town still remains untaken. Such are the disastrous effect."
In market too, if you are not able to control your emotions, if you are not in the right frame of mind, and you still trade you would be more prone to make mistakes. Remember, you need to have a calm mind and look at the market objectively to be be able to trade with discipline.
Lesson No 4
"Thus if you make forced marches without halting day & night, covering double the usual distance at a stretch, doing a lot more extra, in order to wrest an advantage, the leader in such cases will fall into the hands of the enemy"
Another common mistake that a trader can make is over-trading without following a proper trading plan especially to cover-up losses made earlier in the day. Be honest to yourselves and ask how many times have you traded excessively praying & hoping that this trade covers up your losses. When you trade with this mentality where is the focus. It is not on the levels, it is not on understanding risk & reward. In short you are not focusing on the process nor on the end result. It is like driving a car with your eyes focused on rear view mirror. Trade only & only if setup fits your criteria. Only if you see risk:: reward ratio of 1::3 or better. And only if you are prepared to face & accept the outcome.
5 dangerous faults which may affect a general
i. Recklessness
ii. Cowardice
iii. Hasty temper
iv. Delicacy of honor
v. Over-solicitude for his men
To summarize in trading too, the reason for failure will be one or a combination of above mentioned points.
- Recklessness leads to destruction
- If you are too afraid, more often you will have a feeling of regret
- Revenge trade will again make you lose your focus & your money.
- Fear of what other people will think of you can close down your thinking & mind
- If you are too attached to your trade / your position; thinking that you cannot be wrong. This thought process will expose you to worry and trouble.
Now that we are aware of what should be avoided, let us look at what things can lead to winning trades.
There are 5 essentials for victory
1. He will win who knows when to fight & when not to fight
2. He will win who knows how to handle both superior & inferior forces
3. He will win whose army is animated by the same spirit throughout
4. He will win who, prepared himself, waits to take the enemy unprepared
5. He will win who has military capacity & is not interfered with by the sovereign
1. In trading a trader has to understand when the market conditions are favorable to trade and when he should avoid trading. We do not want to be fighting all the time because war & fights demand lot of resources. In trading too, it is not necessary to trade every price movement. It can take a toll on you and can be very stressful. Especially when you buy and market goes down and then you reverse the trade and market goes up. If I have to share my experience in my early trading days, I have had days where I traded like crazy doing 15-20 intraday trades in Nifty but eventually ended either on losing side or ended up paying heavy brokerage fees that effected my profitability in a big way. That did teach me a lesson. Be more selective. I have cut down my trades drastically and now some of my best trading days have been when I have not traded at all but just observed patiently from sidelines allowing my positions to take shape.
2. In trading terms superior and inferior forces could be related to primary trend and corrective trade. Understanding of primary and corrective stage can help a trader decide on his / her potential target, size of potential target (eg 3,/ 5%, 10%, 20%) and accordingly place a Stop loss.
3. It is important for a trader to have the confidence and have same energy and drive when he / she enters the trade. There are times when a trader might go through a losing streak. Even in cricket players like Shikhar Dhawan/ Rohit Sharma go through a lean patch. Sometimes they get dropped out from team too. But they refocus & fight back.
Similarly you need to analyze what is causing a losing trade.
a. Are trading rules being followed
b. has the underlying market condition changed and trading plan does not work the same way in changed conditions. [Rishab Pant for instance was a hit in Indian conditions (excellent in IPL) but struggled overseas when pitch & weather conditions changed] A trader can either acknowledge change and work and improvise his strategies or can focus on his core strength and allow time to re-enter till conditions realign to his strengths
4. As a trader one has to do his / her homework. Spend time in analyzing beforehand. The trading time should be for execution of plans. Identify levels beforehand & initiate trade when that level gets triggered.
Here is an example of identifying levels beforehand.
5. When it comes to trading (which is one of the hardest way to make easy money ;-) , a trader has to identify what are the sovereigns in his or her life that is interfering with his or her trading decisions.
a. A spouse that is not supportive. Complaining about the risks and making lots of problems that interfere with the emotional stability of the trader.
b. Family members who do not understand the realities of a stay at home trader or
c. Work demands at your existing office
Trading like warfare requires intense skill and concentration.
If a "sovereign" interferes with your trading or investing, it is time for you to take hold of the problem and deal with it accordingly.
Have a heart to heart talk with your spouse or family member and help them to understand the demands and responsibilities of a self directed trader/investor. Through honest discussion, they may be able to give you the freedom and time needed to work.
If trading interests you but are working somewhere which demands a lot, then work on trading strategies where you can do justice to both.
If you are trading from home, have a separate room where you operate. No one should enter or disturb you when you are there unless for very important issues.
There is a lot more to learn. There is no recipe to make quick money in this book, but it’s a book I strongly recommend every trader & aspiring trader should read who want to develop their mentality aspect and want to bring in discipline in their trading pattern. which I believe is very important in trading.
All the best.
Be strong be safe...!!!
Penafian
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