What can a Chinese general from 500 BC teach you about active investing and trading?

Quite a bit, if we’re talking about Sun Tzu, the author of the famous book The Art of War.

The Art of War has often been applied as lessons on how you can get ahead at work and in the business world — but it also can be applied to ‘battling’ the markets in search of outperformance.

There are many great principles in Sun Tzu’s writings.Here are few examples of his timeless wisdom applied to trading, some paraphrased to modern thinking:

“He will win who knows when to fight and when not to fight.”

You don’t always need to be fully invested.Pick the best times and places to enter into positions, and when to avoid or back down from allocations.Also, this applies to if a position goes the wrong way, you generally don’t want to fight the market if things don’t go as planned.

“The general who wins a battle makes many calculations in his temple before the battle is fought.The general who loses a battle makes but few calculations beforehand.”

For investing, this can mean don’t make trades on a whim or an impulse without preparing in advance.Always have a rationale for entering a position, a game plan for taking profits and for closing down losers.   Do your research and develop a process before entering a new position.One example is to live paper-trade a strategy before trading it with real money, and also to analyze past trades to see what works and what lessons can be learned.

“Treat your men as you would your own beloved son and they will follow you into the deepest valley.”

Your dollars, your money, are your soldiers.Soldiers are a limited supply.Send them into battle in the markets only when you have confidence that they will succeed and conquer/multiply — when you see the probabilities are in your favor and there is an edge to be gained.Don’t chase good money after bad, or after lost hopes, out of stubbornness.