The Art of War
March 29, 2019
March 29, 2019
The best sources of ideas that should be incorporated into everyman’s investment and the trading plan comes and goes like adolescence fades. They ebb and flow along with the long very social-cultural mentality behind the markets.
The Art of War by Sun Tzu
THE OLDEST MILITARY TREATISE IN THE WORLD and one referenced by Vladimir Putin regarding his annexation of Chiema. When he accomplished his goals without a gun being fired.
The study of military strategy finds identical usage in poker and trading. The lowest risk / highest reward approach in strategies and tactics used in poker and trading is not any different than the general’s approach to war. The best of the best manage their capital as if it was a battle, one that promotes the idea of only funding positions that have a high probability of winning, and once into that position to leverage up maximize profits.
Here is a concept used on the battlefield and made successful by King Frederick II of Prussia. It is called the “oblique order attack.”
The oblique order is a military tactic whereby an attacking army focuses its forces to attack a single enemy flank. However, the general concentrates the majority of his strength on one flank and uses the remainder of his troops to fix the enemy line.
The strength flank would then create an angled or oblique formation, and attack the strongest flank of the enemy with a concentration of force.
Once the critical flank was secure, the commander would wheel the troops 90 degrees to roll up the enemy line -this is what I call getting all your strategy’s ducks – setups – in a row – and the angled formation would continue to advance to crush the opponent.
The echelons not involved in the assault served the important function of holding the rival army in check by remaining defensive and threatening, thus offering protection to the attacking echelons by keeping the enemy force occupied.
It’s how and when investors and traders engage their systems based on risk and reward forecast. The majority don’t get this for many reasons, one is the transactional indoctrination they get from all sources.
So while building systems on robust methods are the preferred approach, the strategies all still have great periods and drawdowns; and these periods can be predicted. It sure reduces activity hence gets little to no attention by the industry.
In my mind, this is one of the best methods of controlling risk and maximizing profits. So in this battle for investment survival, “never interrupt the enemy when he is making a mistake.” Let them continue and sit and wait patiently for you low-risk high reward opportunity.
In poker, you let them rise into your superior hand. If you are in 100% or max percent cash allowed by policy since the double peaks of 2018 you have lost very little based on the 200 day average prices are only 2.7% above it and you are well positioned to re-enter at prices 30% lower and you are able to use long Volatility systems to add to your returns over the next two years.
more on systems and tactics in the next few blog post.