ART OF WAR

ART OF WAR

“Know thy self, know thy enemy. A thousand battles, a thousand victories.”
Sun Tzu quotes (Chinese General and Author, b.500 BC)

I love and use this quote very often when I share with people on how to trade. I regard myself as a general, to be more specific, I consider myself a Spartan general / warrior in battle commanding my soldiers (my account / funds) into battle . Why a Spartan you might ask, because as retail traders, no matter how big the account size (even with millions), we are fighting a war / battle with a few soldiers against an enemy with hordes of troops with an invincible armada.

Know thy self. What does that mean? What's there to know about our self? Knowing yourself is knowing your limitations, the size of your account, your knowledge of the markets, the amount of time you can devote to trading, the trading environment you are working in, the type of hardware and software you have and other constraints that you might have.

Know thy enemy. In the markets there are two enemies; the first yourself, which I personally find is the worst to overcome, the second is the market (and it's participants). As I post more often, I will go through in more detail about the first enemy and how to overcome it.

As in war we will look the “big boys”, the ones who is said by many to move markets. Who are the “big boys”, they are the Governments / central banks, banks, fund managers, big brokers and institutional investors. What do they have in their arsenal? Let me break it down for you.

1.FUNDS: They control / manage billions of dollars. Although the forex market is vast, if they work together, and they do at times, committing billions each, they can move the forex markets to a certain extent to go stop hunting, the process of forcing some traders out of their positions thus making the trader to loose money.

Almost all retail traders don't have funds even near that amount.

2.MANPOWER: They employ the best minds of the financial world, individuals who specialize in specific areas. For example they have people who specialize only in technical analysis, others is fundamentals, others in specific counters / instruments, example EUR/USD or XAU/USD (gold).

Most retail traders, who I am sure are smart people in general or are a specialist their respective
fields, example doctors, lawyers and accounts, do not posses the same knowledge level as a professional trader / analyst.

3.24 HOURS TRADING DESK: They have traders trading 24 hours a day (with shifts) trading all the markets around the world.

I am a full time trader trading for a living, at the most, I trade for about 16 hours a day. Most retail traders have other commitments, like a job and family and can't trade 24 hours a day.

4.SOFTWARE: They have access to professional charts and news feed. They have access to very fast news, as fast as when the news hits the wire they will get it.

Most retail traders are using free or cheap, cheap as in they pay a low fee, for charting software. For myself, I use several charting services, about half of the software I pay a monthly fee for. In software terms, our access cannot be compared to them.

5.HARDWARE: They have the best hardware / computers that money can buy. The fastest computers in the world are at their disposal.

We, being normal mortals do not have the ability to buy such expensive computer systems. We have to stick with what most of the world is using.

6.COST: They have little or no cost, or what in the business calls spread. Every time they enter the market, their spread is practically nothing.

Because of the volume / size of the account and the amount of funds committed to the position, the spread is higher for retail traders. Allow me to give an example, most brokers charge 2 PIPS(points) for a EUR/USD trade, the cheapest broker I use, charges 0.5 – 0.9 PIPS. Although this is relatively low, the spread for the “big boys” are cheaper. This might sound like a small difference, in the long run, this savings add up to a lot of money.


I know how this all sounds, how does a normal person go up against such odds. You now know about yourself, you know the enemy, now what? Let me now share with you a glimpse of how a normal retail trader can beat the odds by showing you the week points of the “big boys”.

Firstly the “big boys” are too big, because of their trade size they can't go in and out of the market like retail traders without making some kind of price movement or attract attention from other market participants. Secondly we being individual traders, have the luxury of not trading on any particular day, the “big boys” do not. They must trade or at least be in a position at any one time. We, the small fish, being small, can weave in and out of the market with easy, the “big boys” cannot.

Although this two advantages seem small, if understood correctly can be a tremendous advantage. Let me elaborate, for example the “big boys” can't enter the market so frequently, they tend to look at a bigger time frames when trading, example the day or weekly charts. Not only can the normal trader look at the bigger charts, they can also look at the smaller one, ranging from 1 min charts to the 4 hour charts. This from experience, is an extreme advantage. The normal retail trader can “get in” early, with lower risk, in a new trend relatively early compared to the “big boys”.

To become successful in trading, you will have to know what you are up against, and knowing is half the battle won. There are many more things to be understood, as I share more, I hope to give you a better understanding on how to be successful in trading or at least not to blow your account.