May 16

10 Short Trading Lessons from The Art of War

By Yvan


In 2005, I was hanging out at a trading and investing club in Paris, France. There, I met a very successful trader named Francois. 

Back then, I wasn’t trading full time yet, I was just dabbling, and unbeknownst to me, Francois tried to pass on a lot of his knowledge and experience to me, especially about the mindset element of trading.

I was very early in my development, so a lot of it went over my head. It’s only much later that I began to grasp what he was trying to impart upon me.

Francois recommended that I read a book called The Art of War.

Honestly, I only read it 4-5 years later after a lot of pain in the market. I found it to be a very concise and easily memorable book, and had I read it earlier, it would certainly have made my trading journey perhaps a little easier, a little less hard.

The Art of War was written over 2500 years ago by Sun Tzu, a Chinese general, military strategist, and philosopher. The book was originally written to provide a strategy in war. But fundamentally, the pieces of advice in there can be applied anywhere else.

Below, I want to share 10 short lessons from the Art of War that work very well in a trading context.

#1

If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.

In trading:

If you know the market and know yourself, you’re in a great place to profit consistently. But if you know the market and not yourself, or if you do not know the market, nor yourself, your results will tend to be random.

In other words, to make it as a consistently profitable trader, you must have all the spokes in the wheel.

#2

He who knows when he can fight, and when he cannot, will be victorious.

In trading:

Don‘t be desperate to trade. You can’t be a trader if you’re desperate and impatient. You must let the market come to you. Patience is not just a virtue, it’s gold! Sometimes you can accomplish the most by doing nothing and just waiting. You’ll save an enormous amount of time and energy.

If you let your emotions rule your trading, this will put you at a big disadvantage.

#3

According as circumstances are favorable, one should modify one’s plans.

In trading:

This is a bit of great advice for experienced traders, but not so much for beginners. Only the best traders with ample trading and market experience get a free pass to not follow their trading plan from time to time.

If you’re only beginning, work on developing that flair too.

#4

It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on.

In trading:

On your journey to consistent profitability as a trader, you must work to understand the market. But not only that, you must also work on understanding yourself. And as you do, you’ll fall, you’ll fail, but after some time, you’ll learn. And eventually, you’ll master.

Then get-rich-quick prospectors will watch you from the outside, jaw hanging. They’ll see how trading is simple and they’ll automatically think success a straight line. It never is.

#5

The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand.

In trading: 

Making your trading decisions in the heat of the moment is generally a bad idea. You must know your levels in advance and reserve the trading session for execution only. Unpreparedness will almost always leave you in a weak position.

#6

Be like water. Water shapes its course according to the nature of the ground over which it flows.

In trading:

When you hear traders defend their market assumptions as if they’re guarding some kind of treasure, it signals their vulnerability. Don’t be a perma-bull, or a perma-bear, or anything like that. Just have a plan and don’t be too rigidly attached to what you think the market will do.

#7

It is a military axiom not to advance uphill against the enemy, nor to oppose him when he comes downhill.

In trading:

A trend, once in place, has a higher chance of continuing in the same direction for a while. Don’t fight it. In a bull market, buy the dips and the breakouts. In a bear market, sell the rallies and the breakdowns. And cut your losses when things aren’t going your way. 

#8

Advance without coveting fame and retreat without fearing disgrace. Have your only thought be to protect the country and do good service for the sovereign.

In trading:

Don’t focus on the money. Win or lose, focus on playing the game well. Focus on the long game. And let money simply be a by-product.

#9

The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.

In trading:

At all times, strive to maintain a positive mindset. With a positive mindset, even the worst loss can magically transform into a great opportunity.

Also, determine what you can control and what you can’t control. Your behavior is what you can control. Your risk, your entry, and exit as well. But the market is out of your control. Make a habit out of reminding yourself of that.

#10

 The supreme art of war is to subdue the enemy without fighting.

In trading: 

There is a huge amount of freedom that is derived from not fighting the market and accepting what it gives. Don’t let instant gratification get in the way of process. Play your part well. The profits will take care of themselves.

 

Conclusion

I hope you enjoyed these short trading lessons from the Art of War. I like the book because it reads like a trading psychology manual.

That’s what makes it timeless, I think. It’s how relatable it is.

Almost anywhere in the book, you could replace words like war or the enemy with words like the market or trading, or even life.

This is not to say that the market is your enemy. No, the market is impersonal and it’s not out to get you.

At the end of the day, it’s your own psychology that makes things difficult. And this book helps you become a bit more aware of that and see trading for what it is – a strategy game.

I hope you get the book. Thanks for reading.

 

 

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Memorable Lines From This Post

Don‘t be desperate to trade. You can’t be a trader if you’re desperate and impatient. You must let the market come to you. 

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When you hear traders defend their market assumptions as if they’re guarding some kind of treasure, it signals their vulnerability.

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In a bull market, buy the dips and the breakouts. In a bear market, sell the rallies and the breakdowns. And cut your losses when things aren’t going your way. 

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Don’t focus on the money. Win or lose, focus on playing the game well. Focus on the long game. And let money simply be a by-product. 

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