Summary

This video explores the profound connections between Sun Tzu’s “The Art of War” and financial trading. By examining the third chapter, “Attack by Stratagem,” the video highlights eight key principles that can be applied to trading. These include prioritizing capital preservation, the importance of planning and analysis, the power of small positions, avoiding overcommitment, the role of the trading system, the dangers of greed, anger, and ignorance, knowing when to trade and when not to trade, and understanding both the market and oneself. The insights from “The Art of War” offer valuable guidance for navigating the financial markets and enhancing trading success.

Transcript

Welcome to Jesse Lau’s channel.

Today, we’re delving deeper into Sun Tzu’s “The Art of War” and its relevance to financial trading. We’ll focus on the third chapter, “Attack by Stratagem,” drawing parallels between the strategies of ancient warfare and the tactics we use in the modern financial markets.

Point 1: Prioritizing Capital Preservation

Sun Tzu said, “In the practical art of war, the best thing of all is to take the enemy’s country whole and intact; to shatter and destroy it is not so good.“ This can be likened to the principle of capital preservation in trading. Our primary goal should be to protect our capital. Therefore, a key aspect of any trading system is to ensure that floating profits do not turn into losses.

Point 2: The Importance of Planning and Analysis

Sun Tzu emphasized the importance of strategy with the phrase “Thus the highest form of generalship is to balk the enemy’s plans.” In trading, this can be interpreted as the need for a holistic perspective, analysis, planning, and the development of trading algorithms before entering the market.

Point 3: The Power of Small Positions

Sun Tzu advised, “If equally matched, we can offer battle; if slightly inferior in numbers, we can avoid the enemy; if quite unequal in every way, we can flee from him.“ This can be translated into trading as the strategy of entering the market with small positions, allowing us to retreat quickly if necessary. This guerrilla warfare strategy emphasizes quick victories.

Point 4: Avoiding Overcommitment

Sun Tzu warned, “Hence, though an obstinate fight may be made by a small force, in the end it must be captured by the larger force.” In trading, this can be seen as a warning against overcommitting to a losing position. Doubling down on a losing trade is akin to a small force obstinately fighting a larger one – it is bound to fail.

Point 5: The Role of the Trading System

Sun Tzu said, “Now the general is the bulwark of the State; if the bulwark is complete at all points; the State will be strong; if the bulwark is defective, the State will be weak.“ In trading, the “general” can be seen as your trading system. A comprehensive and well-executed trading system can lead to success, while a poorly constructed or executed system can lead to losses.

Point 6: The Dangers of Greed, Anger, and Ignorance

Sun Tzu outlined three ways a ruler can bring misfortune upon his army. In trading, these can be likened to the dangers of greed, anger, and ignorance. As traders, we must strive to avoid these pitfalls.

Point 7: Knowing When to Trade and When Not to Trade

Sun Tzu said, “He will win who knows when to fight and when not to fight.” In trading, this means knowing when to enter the market and when to stay out. Trading with high leverage or during times of extreme market volatility can be dangerous.

Point 8: Knowing the Market and Yourself

Sun Tzu famously said, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.“ In trading, “knowing the enemy” can be interpreted as understanding the market, while “knowing yourself” refers to understanding your trading style, risk tolerance, and emotional triggers.

In conclusion, the wisdom of Sun Tzu’s “The Art of War” provides 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.

Now let’s read the third chapter. Attack by Stratagem. Sun Tzu said: In the practical art of war, the best thing of all is to take the enemy’s country whole and intact; to shatter and destroy it is not so good. So, too, it is better to recapture an army entire than to destroy it, to capture a regiment, a detachment or a company entire than to destroy them. Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting. Thus the highest form of generalship is to balk the enemy’s plans; the next best is to prevent the junction of the enemy’s forces; the next in order is to attack the enemy’s army in the field; and the worst policy of all is to besiege walled cities. The rule is, not to besiege walled cities if it can possibly be avoided. The preparation of mantlets, movable shelters, and various implements of war, will take up three whole months; and the piling up of mounds over against the walls will take three months more. The general, unable to control his irritation, will launch his men to the assault like swarming ants, with the result that one-third of his men are slain, while the town still remains untaken. Such are the disastrous effects of a siege. Therefore the skillful leader subdues the enemy’s troops without any fighting; he captures their cities without laying siege to them; he overthrows their kingdom without lengthy operations in the field. With his forces intact he will dispute the mastery of the Empire, and thus, without losing a man, his triumph will be complete. This is the method of attacking by stratagem. It is the rule in war, if our forces are ten to the enemy’s one, to surround him; if five to one, to attack him; if twice as numerous, to divide our army into two. If equally matched, we can offer battle; if slightly inferior in numbers, we can avoid the enemy; if quite unequal in every way, we can flee from him. Hence, though an obstinate fight may be made by a small force, in the end it must be captured by the larger force. Now the general is the bulwark of the State; if the bulwark is complete at all points; the State will be strong; if the bulwark is defective, the State will be weak. There are three ways in which a ruler can bring misfortune upon his army:– (1) By commanding the army to advance or to retreat, being ignorant of the fact that it cannot obey. This is called hobbling the army. (2) By attempting to govern an army in the same way as he administers a kingdom, being ignorant of the conditions which obtain in an army. This causes restlessness in the soldier’s minds. (3) By employing the officers of his army without discrimination, through ignorance of the military principle of adaptation to circumstances. This shakes the confidence of the soldiers. But when the army is restless and distrustful, trouble is sure to come from the other feudal princes. This is simply bringing anarchy into the army, and flinging victory away. Thus we may know that there are five essentials for victory: (1) He will win who knows when to fight and when not to fight. (2) He will win who knows how to handle both superior and inferior forces. (3) He will win whose army is animated by the same spirit throughout all its ranks. (4) He will win who, prepared himself, waits to take the enemy unprepared. (5) He will win who has military capacity and is not interfered with by the sovereign. Hence the saying: If you know the enemy and know yourself, your victory will not stand in doubt; if you know Heaven and know Earth, you may make your victory complete. Thank you for watching. Please like, share, and subscribe.

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