AT THE CLOSE Trading And The Art Of War
by Sarp Cercioglu
IF you are a trader, you may have heard the expression that "trading is war." The similarities between trading and traditional warfare are undeniable and if trading is war, then the financial markets are the battlegrounds. When you participate in active trading, you engage in an ongoing battle against other traders as well as your emotions. As a trader, you have the task to determine which army is stronger, the bulls or bears, and which is more likely to prevail within your time horizon. Further, as a trader, you must be able to handle the emotional strain that trading places on you.
Let us explore the similarities between battles in actual warfare and battles in the markets.
DECEPTION AND SURPRISE
One of the most effective tools used in battles was the use of deception and surprise. Sun Tzu, in his military strategy book The Art Of War, wrote, "Those who skillfully move opponents make formations that opponents are sure to follow, give what opponents are sure to take, they move opponents with prospect of gain, waiting for them in ambush." Many of history's greatest battles were won on this principle alone. An army would arrange such a formation that the troops would look narrow from a distance. The other army would seize the perceived advantage and attack, only to be defeated.
In the same way, the markets are full of false alarms and surprise attacks. Bull and bear traps are two great examples. The bull trap is an indication on the charts such as a stock breaking through resistance or making a new high, only to reverse and decline, trapping the investors who buy on the initial signal in a bad investment. A bear trap is just the opposite. Bump-and-run reversals, rising and falling wedges, and dead cat bounce formations are other good examples of the use of deception and surprise in the markets. ... Continued in the August 2008 issue of STOCKS & COMMODITIES magazine
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Originally published in the August 2008 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2008, Technical Analysis, Inc.