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Art of Trading à la Sun Tzu: Applying the Concept of War Strategy in Financial Markets (Part 1)

Sun Tzu, a figure in the Art of War, has imparted wisdom that can be applied to various aspects of life, including the world of trading. In this article, we will extract several principles that can be adapted into trading, providing valuable insights for traders.

Trading Concept Context:

• General = You/Trader
• Battle = Trading
• Troops = Capital/Your Money

1. Understanding the Market
"We are not fit to lead troops in March unless we are familiar with the face of the country - mountains and forests, traps and pitfalls, marshes and swamps." (Sun Tzu)
  • Analogy: If you do not understand the market, it's akin to being unfamiliar with the face of a country, risking significant loss of capital. It's important to understand market conditions before investing.
2. Trader Psychology
"A General who cannot control his temper will launch his men to the attack like swarming ants, with the result that one-third of his men are slain, while the city still remains unconquered. Such is the calamity of siege warfare." (Sun Tzu)
  • Analogy: Emotions like anger can be detrimental to trading. It's important to remain calm and not be swayed by emotions when making trading decisions.
"The following are highly dangerous mistakes for a general:
(1) recklessness,
(2) cowardice,
(3) hasty temper,
(4) sensitivity to honor that drives to shame,
  • Analogy: Psychological errors, such as recklessness or excessive anxiety, can have a negative impact on trading decisions.
3. Money Management
"Control of a large force is the same principle as controlling a few men: it is merely a question of dividing up their numbers." (Sun Tzu)
  • Analogy: The principle of controlling a large force applies to capital management in trading. It's important to allocate capital wisely according to trading rules and systems.
4. Stepping Away from the Market
"He will win who knows when to fight and when not to fight." (Sun Tzu)
  • Analogy: It's important to know when to trade and when not to. Impulsive trading or trading in unfavorable market conditions can result in unnecessary losses.

This article discusses key concepts in Sun Tzu's Art of War that can be applied to trading. Through the application of these principles, it is hoped that traders can develop smarter strategies and enhance their success in the financial markets. Stay focused on self-improvement and adaptation to dynamic market conditions.


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