The Art of War is an ancient Chinese military essay credited to Sun Tzu (also referred to as "Sun Wu" and "Sunzi"), a prominent military general, strategist and tactician. Regarded as a seminal military manuscript, it was written during what is known as the ‘Era of Warring States’, which resulted in a unified China under the Qin Dynasty.
It is clear that forex trading and war are comparable in many ways. It is the thinking and decision making of the military commanders that win or lose the war. Similarly, forex traders use computers and software as their soldiers to execute the orders, but it is their skills to evaluate the markets and their trading plans that result in profit or loss.
Many traders think that to make steady earnings in Forex, all you need is a magic strategy and a bit of luck.Furthermore, the progress of the forex trading technologies and tools blinds us into believing that all we need is a state-of-the-art kit software equipped with the a recent math-voodoo algorithm. After all, many large companies use these components and seem to be doing very well. However, technical knowledge and technology are only of value if you know what are you doing with them. A trading system is only one component of your success in fact this multi-faced problem which must be approached from different angles.Like war, forex trading is a brutal game. Let us just say that for every forex victory there are one or more losers. Today, we will consider principles contained in The Art of War by Sun Tzu and apply them to forex trading analysis.
The Art of War “Maintaining the goodwill of the people is essential to win the battle.”
Forex explanation A forex beginner, just wanting to make some extra money and have a better lifestyle may not represent a strong enough example of a purpose to carry on through the unavoidable testing and troubles that lie ahead. A more individual objective is needed, then one which really stimulates and motivates you.
The Art of War – “In battle, where there is no retreat or surrender, soldiers will have nothing to be afraid of and there will be nothing that they can’t achieve.”
Forex explanation – You must have a winning state of mind and focus on the big picture. Do not let small or even considerable but unavoidable setbacks to shake your self-confidence or jeopardize your plan.
The Art of War – “Maintaining the momentum of troops during war is important.”
Forex explanation – Maintain your momentum and do not get diverted and depressed after a sequence of losing trades. Do not get overexcited either after a string of winners. Maintain your calm and observe your victories.
The Art of War – “So in war, the way is to avoid what is strong, and strike at what is weak.”
Forex explanation – Understand the strengths and drawbacks of your forex strategy, your actual skills and determination. Add positions if the market proves your trade direction. If a doubt, either exit or reduce the size of your trades.
The Art of War – “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.”
Forex explanation – Once you are aware of the present state of the forex market, you will have a better idea of what is your next step. Establish clearly whether it is a bull market, bear market or a range bound market. Assessing the volatility in order to decide of the size of the trade and stops. At the same time know your own powers and weak spots and typical situations when you can lose.
The Art of War – “To know your Enemy, you must become your Enemy.”
Forex explanation – To really understand the actual status of the market, you have to think like everyone else, see what they see and feel what they feel. However, you do not have to trade the way they trade.
The Art of War – “Outwit the enemy instead of trying to outfight the enemy.”
Forex explanation – Do not fight the market. You will lose. For example, if you risk 50 pips for a gain of just 5 pips, you may have a series of small wins, but you’ll end up giving back all your profits and more in one or two losing trades.
The Art of War – “The supreme art of war is to subdue the enemy without fighting.”
Forex explanation – One good trade is better than ten winning and ten losing trades even though your profit is the same. A smooth trade in the right time with real understanding of the market condition is what makes a good forex trader.
The Art of War – “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”
Forex explanation – Good traders do not trade every day or every minute to make money. They wait for a right setup before entering the trade.
The Art of War – “In battle, use a direct attack to engage and an indirect attack to distract enemy attention.”
Forex explanation – Find the major trend. Unimportant pull backs do not mean a change of trend. Smart trading with the trend increases your chances.
The Art of War – “Use attack to exploit victory, never use attack to rescue defeat.”
Forex explanation - Do not keep a losing position hoping to average out. Add to money-making trades.
The Art of War – “Victory comes from deep thinking and detailed calculation.”
Forex explanation – Do not use a strategy that you don’t understand fully or one that hasn’t been accurately evaluated and tested. Most likely you will fail.
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