Sun Tzu’s “The Art of War” in Financial Trading

Summary

In this blog post, we have explored the application of Sun Tzu’s “The Art of War” to financial trading. By drawing parallels between ancient warfare strategies and modern trading tactics, we have uncovered valuable insights that can guide traders in navigating the financial markets. Key takeaways include understanding costs and rewards, avoiding prolonged exposure, utilizing resources efficiently, and focusing on goals. These principles, when applied to trading, can lead to increased success and profitability.

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Introduction

Hello Traders! Today, we’re continuing our exploration of Sun Tzu’s “The Art of War” and its application to financial trading. We’ll focus on the second chapter, “Waging War,” drawing parallels between the strategies of ancient warfare and the tactics we use in the modern financial markets.

Point 1: Understanding Costs and Rewards

Sun Tzu highlights the significant cost of engaging in warfare. He said, “In the operations of war, the expenditure at home and at the front will reach the total of a thousand ounces of silver per day.” This can be likened to the costs we incur in our transactions, such as spreads, slippage, and the time cost of trading. As traders, we must understand our investment costs and potential rewards to determine if a trade is worth entering.

Point 2: Avoiding Prolonged Exposure

Sun Tzu warned against prolonged warfare, stating, “There is no instance of a country having benefited from prolonged warfare.” This wisdom can be applied to trading by reminding us of the risks of staying in the market for too long. The market is unpredictable, and prolonged exposure increases risk. Therefore, it is not advisable to commit a large portion of your assets to a single trade.

Point 3: Understanding Profits and Losses

Sun Tzu emphasized the importance of understanding both the benefits and the harms of war. He said, “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, this translates to the necessity of understanding both potential profits and losses. This understanding is crucial in setting stop-loss and take-profit levels, and in maintaining a favorable risk-reward ratio.

Point 4: Using Market Dynamics

Sun Tzu advised that a wise general should “bring war material with you from home, but forage on the enemy.” In trading, this can be interpreted as using market dynamics to our advantage. Traders can use market fluctuations to generate profits, rather than relying solely on their predictions.

Point 5: Focusing on Goals

Sun Tzu emphasized that the objective of war should be victory, not prolonged campaigns. He said, “In war, then, let your great object be victory, not lengthy campaigns.” In trading, this means that traders should focus on their goals, rather than getting overly concerned with each transaction.

Point 6: The Importance of Discipline and Reward

Sun Tzu stated, “Now in order to kill the enemy, our men must be roused to anger; that there may be advantage from defeating the enemy, they must have their rewards.” In trading, this can be seen as the importance of maintaining discipline in following trading plans and strategies, and the motivation of potential rewards.

Point 7: Utilizing Resources Efficiently

Sun Tzu said, “The skillful soldier does not raise a second levy, neither are his supply-wagons loaded more than twice.” This can be interpreted as the importance of managing and utilizing resources efficiently in trading. Overtrading can lead to increased costs and decreased efficiency.

Point 8: The Role of the Leader

Finally, Sun Tzu said, “Thus it may be known that the leader of armies is the arbiter of the people’s fate, the man on whom it depends whether the nation shall be in peace or in peril.” In the context of trading, this leader can be seen as the trading plan or the execution of the trading strategy. A well-executed trading plan can lead to success, while a poorly executed one can lead to losses.

Conclusion

In conclusion, the wisdom of Sun Tzu’s “The Art of War” offers valuable insights for financial trading. By applying these principles, we can navigate the financial markets more effectively and increase our chances of success. If you find this video helpful, please give it a thumbs up and subscribe to our channel for more.

Waging War

Now let’s read the second chapter. Waging War Sun Tzu said: In the operations of war, where there are in the field a thousand swift chariots, as many heavy chariots, and a hundred thousand mail-clad soldiers - with provisions enough to carry them a thousand li, the expenditure at home and at the front - including entertainment of guests, small items such as glue and paint, and sums spent on chariots and armor - will reach the total of a thousand ounces of silver per day. Such is the cost of raising an army of 100,000 men…

When you engage in actual fighting, if victory is long in coming, then men’s weapons will grow dull and their ardor will be damped. If you lay siege to a town - you will exhaust your strength. Again, if the campaign is protracted, the resources of the State will not be equal to the strain. Now, when your weapons are dulled, your ardor damped, your strength exhausted and your treasure spent - other chieftains will spring up to take advantage of your extremity. Then no man, however wise, will be able to avert the consequences that must ensue…

Thus, though we have heard of stupid haste in war, cleverness has never been seen associated with long delays. There is no instance of a country having benefited from prolonged warfare. It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on…

The skillful soldier does not raise a second levy, neither are his supply-wagons loaded more than twice. Bring war material with you from home - but forage on the enemy. Thus the army will have food enough for its needs. Poverty of the State exchequer causes an army to be maintained by contributions from a distance. Contributing to maintain an army at a distance causes the people to be impoverished. On the other hand, the proximity of an army causes prices to go up; and high prices cause the people’s substance to be drained away. When their substance is drained away, the peasantry will be afflicted by heavy exactions. With this loss of substance and exhaustion of strength, the homes of the people will be stripped bare, and three-tenths of their income will be dissipated; while government expenses for broken chariots, worn-out horses, breast-plates and helmets, bows and arrows, spears and shields, protective mantles, draught-oxen and heavy wagons - will amount to four-tenths of its total revenue…

Hence a wise general makes a point of foraging on the enemy. One cartload of the enemy’s provisions is equivalent to twenty of one’s own, and likewise a single picul of his provender is equivalent to twenty from one’s own store. Now in order to kill the enemy - our men must be roused to anger; that there may be advantage from defeating the enemy - they must have their rewards. Therefore in chariot fighting, when ten or more chariots have been taken, those should be rewarded who took the first. Our own flags should be substituted for those of the enemy, and the chariots mingled and used in conjunction with ours. The captured soldiers should be kindly treated and kept…

This is called - using the conquered foe to augment one’s own strength. In war, then, let your great object be victory, not lengthy campaigns…

Thus it may be known that the leader of armies is the arbiter of the people’s fate, the man on whom it depends whether the nation shall be in peace or in peril.

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