Carl Von Clausewitz ... On Trading.

Those of you who have met me, know that as a serving military officer I am a student of warfare.

I recently set about the study of Clauswitz's seminal work ... On War, expecting to find little of relevance to my other passion, that is the object of this blog. But I couldn't have been more wrong.

Indeed, such was the relevance that I am compelled to articulate some specific insights that will be of use to you in your trading.

By way of setting the scene I need first to argue the case for this relevance...

... I mean, what is trading if not war ? Whilst an Analyst studies the Market from distance, passing his observations on for action or otherwise, it is the Trader who - as a General - converts those observations to execution. And in doing so he or she takes on that most fearsome of foes, the Market, in an engagement that that will end in either victory or defeat.

The General, as the Trader, will only prevail if he possesses the coup d'oeil to see the chance, the boldness to take it and the conviction to see it through.

As Traders, it is our backtesting that gives us the insight to see this chance and our boldness to execute the trade, but how many of us close an ultimately successful trade before our goal is attained - or worse - we close at a loss ?

Clausewitz explains this frailty eloquently in his observations on the 'Fog of War'. As a General's meticulously laid plans are exposed and challenged at the onset of the engagement, so are ours at the instance a trade is executed.

From this moment the General's presumptions are challenged by the ebb and flow of the engagement or - in our case - Price, toward or away from our profit target. And this is where conviction plays so heavily.

As the best Generals possess the conviction necessary to weather 'the noise' of the engagement, confident that their plans will - in the final analysis - secure the victory sought, so we must embody the same quality to endure the noise of the Market.

Generals with this rare combination of coup d'oeil, boldness and conviction are bestowed the accolade of genius; genius being a highly developed mental aptitude for a particular occupation.

Is this not the degree of mastery that we seek - that we must seek - as Traders ?

... How else are we to prevail with consistency against the Market ?

So now to the juice as for me this is all about that last, vital, quality of conviction.

The only way that we - as Traders - can achieve the degree of conviction required, is to complete our backtesting and bolt down our money management. Any weakness here will play on our conviction and unseat us in the fog of our engagements with the Market.

I say all of this with a recent trading experience at the forefront of my mind. I entered a trade to a high probability price point accurately identified, only to close it at break even when it didn't achieve profit in the time-scale I had anticipated.

Now you may say that, at least, I survived in-tact to fight another day; but this is to ignore the lesson of Clauswitz. My system probability, profitability, money management and all, is based on taking every opportunity that the Market presents.

When price eventually - this morning actually - reached the profit target I had originally identified it represented defeat, not survival, because tactical stalemate has taken me one step closer to, an inevitable, tactical defeat without recording the success that I was due.

So to conclude; we as Traders need to attain the status of genius to succeed, consistently, against the Market. If we attend to our backtesting and money management, we arm ourselves with coup d'oeil to see the chance, the boldness to take it and the conviction to withstand the 'fog' of the trade.

If we fail to do this, then we will ultimately fail. It is that simple.

I clearly need to do better, but I know that I am not alone.