Art of War - Can it be Applied to Trading?
Many traders think that to make consistent profits in the markets, all you need is a holy grail. From my experience, a trading methodology or system is only one of the ingredients of success. The advancement of technology blinds us into thinking that all we need to be successful is state-of-the-art kit and the latest software. After all, banks fit into this category and they tend to do pretty well. However, technical wizardry is only of value if you know what to do with it. Does Warren Buffett rely on the latest technology to make his investments, or does he put his faith and his money into time tested principles of yesteryear? Modern technology is a useful tool for many traders, but to ensure it’s used wisely and to full advantage, they may benefit from studying some military principles dating back to around BC500.
The Art of War is an ancient Chinese military treatise attributed to Sun Tzu (also referred to as "Sun Wu" and "Sunzi"), a high-ranking military general, strategist and tactician. Regarded as a classic military text, it was thought to have been compiled during what is known as the ‘Era of Warring States’, which resulted in a unifiedChinaunder the Qin Dynasty. What does war have to do with trading? Well, the two are comparable in many ways. Soldiers fight the battle, but it’s the thinking and decision making processes of the generals and politicians that tend to win (or lose) the war. Similarly, traders require computers and fancy software to execute their trades, but it’s their ability to assess the markets and how well they execute their trading plan that results in profit or loss.
Like war, trading is a brutal game. Generally speaking, for every winner there are one or more losers. To help ensure you are on the right side of this divide, it may pay you to consider the principles contained in The Art of War. What follows is just a selection, not the complete book, and your interpretations of the text may be different from those offered here. For clarity, the principles are divided into four sections, all of them are quoted foe “The Art War”