Making a trade is like sending soldiers on the march, declaring war, in anticipation that the cost of doing so will bring gains and fortune outweighing losses. Trading is the war, with each trade a battle.
To win a war is to know your limits, and not overextend yourself — doing so leaves you vulnerable to attack. Even winning battles while the tide is against you will cost you in the long run, depleting resources (often mental) leading to your demise. When battles are to be waged fight only on your own terms, keeping it cheap for yourself and expensive for anyone who crosses your path. By using economic war strategy, fighting efficiently, and only on your own terms, you’ll outlast even the most powerful of foes.
Economic War Strategy: Historic Example (what not to do)
The ancient Romans were masters of warfare, often forcing smaller armies to fight on Roman terms, crushing these armies one by one. But an exception seemed to come in 281 BC. Rome had gone to war with the city of Tarentum on Italy’s east coast. The city was rich, but had no army. There was no time to raise an army, and no one to train new soldiers, so there was but one choice…
The Tarentines requested King Pyrrhus of Epirus to come fight on the city’s behalf. Not only would the king be paid for his service, but the battle would also serve to further his ambitions of following in his lineage of great war heroes, including Achilles and Alexander the Great (a distant cousin, so he said).
Tarentum also promised that additional soldiers would also be recruited from allied kingdoms to help Pyrrhus in his battle. Pyrrhus’ kingdom was small and poor, but he raised a ruthless army and was a master strategist at war. He accepted the invitation.
Upon arriving in Tarentum, after sailing the biggest Greek army ever into Italy, Pyrrhus found the Tarentines had failed in their attempt to obtain soldiers from allied kingdoms (or had not tried). This unsettled Pyrrhus, but he gathered local men and began to train them as soldiers as quickly as he could.
The Romans knew the King of Epirus was a great strategist and leader, so not wanting to allow his army to grow, the Romans moved in and attacked. The early attack put the small army on its heels and near defeat. But Pyrrhus had a secret weapon. Unleashing 20 stampeding elephants, the Romans scattered. Having lost their morale the Romans were soon in full retreat. The battle had been one won by the smaller army.
Word spread and neighboring kingdoms began sending troops to Pyrrhus to help fight the Romans. But many of Pyrrhus’s great generals had been killed in the battle and his losses were heavy. He attempted to offer a peace treaty with the Romans, offering to split the Italian territory with them. At the same time he marched on Rome to give the matter a sense of urgency.
The Romans scoffed at the proposal and sent out troops to once again do battle. Pyrrhus, the great war strategist, was again able to defeat the Romans by luring them into ill suited terrain, slowly demoralizing the Roman soldiers and then once again unleashing his elephants.
The Italians cheered and it seemed like a great victory. The Romans were undaunted and had the resources to keep sending more troops if it came to that. Once again losses were heavy for Pyrrhus; his great generals almost completely decimated.
When Pyrrhus was asked about the victory, he stated, “If we defeat the Romans in one more such battle, we shall be totally ruined.”
Economic War Strategy: The Trading Take Away
Winning one battle means nothing if you lose the war. With trading, the war is always on, but you can choose the battles you take part in–a luxury most traders ignore. So eager to jump into the next trade, they forget that not every moment presents trades worth the capital risk. The market is a fordable enemy (or your greatest ally), and can outlast even the richest trader who fails to go with the current tide, or who recklessly makes trades with no real (or known) payoff.
The greatest strategy is to go with the path of least resistance, for doing so won’t significantly deplete your resources. Those that take the other side of the trade will continually be losing resources. At times a move in their direction may occur, and it seems like they won the battle, but stay vigilant. In the end it is the person who maintains his resources and possesses the ability to utilize those resources at times it will (likely) benefit him that wins the war.
Don’t be Pyrrhus, who though a great fighter, ran himself into the ground by fighting an army (trend) which could long outlast him. As soon as Pyrrhus got to Tarentum and saw no recruits waiting for him, the game had changed. It was no longer what he signed up for, yet, he did not adjust his strategy – this was his first mistake.
What was a good trade a minute ago, may not be anymore. Walk away if conditions aren’t right.
Marching on Rome when he was not ready also was a mistake. He would have been far better off to let the Romans come to him, to his own terrain where he could keep losses to a minimum and Roman casualties high. It is also quite possible that Pyrrhus entered a war he never should have taken on in the first place, but his ego got in the way of clear judgement. Don’t begin trading, likely losing real capital, until you are prepared. Markets don’t require to you trade real capital right now, so wait till you are ready. Save resources until you are capable of fruitfully putting that capital to use.
Day traders: trade with the intra-day trend, and do not waste time or money fighting the trend. Long-term traders: in a down market, save your resources. There will come a time to utilize your money for worthy investments when the market turns higher. Continually trying to buy in a down market will only serve to demoralize you and deplete your resources for when real opportunities come along. Use an economic war strategy.
The lesson is summed up perfectly by Robert Greene in “The 33 Strategies of War:”
From the Story of King Pyrrhus and his famous lament after the Battle of Asculum comes the expression “Pryrrhic Victory,” signifying a triumph that is as good as defeat, for it comes at too great a cost. The victor is too exhausted to exploit his win, too vulnerable to face the next battle.
By Cory Mitchell, CMT
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In Trading Plan to the End – The story of the Prussian premier Otto von Bismarck, and how we executed his plan perfectly from the beginning and stopped when he reached his goal–a skill few people have.