Trading is financial war. Losses are casualties, profits are territory conquered. An innumerable amount of trading lessons can be drawn from the study of military victories; however one specific war applies best to the individual trader: The Revolutionary War.
On April 18th, 1775 a disjoined group of local militia fired the first shots at Lexington against the greatest military force the world had ever seen and changed history forever. However, it is how the Colonials won the war that provides a cardinal lesson for the individual trader. Very simply we, the individual trader, are the Colonials waging war against the financial superpowers of our time consisting of the Fed, the ECB, and corrupt investment banks. It is an honorable fight, but a battle that must be waged correctly.
Immediately the Patriots realized that engaging the British in traditional firing line warfare on a battlefield was a recipe for certain death. As individual traders we often have great egos, much like the ego required to declare independence from the British. We want to make a gallant stand (rates must go up, gold must go down, the Euro will collapse) but what we in fact are doing is engaging a power much greater than us. No individual trader has the financial fire power to stand toe to toe against the Central Banks, Goldman Sachs, or a bulge bracket hedge fund so why engage these powers in traditional warfare? Trade like a Patriot.
The Colonials won the war by changing the rules of war. They waited for the perfect shot while hiding in the trees instead of standing exposed on a battlefield. The Patriots took one shot, one kill. When they missed they disappeared into the woods to fight another day. And this is the key, fight another day! We can take grandiose positions or we can decide to make one trade, one profit. Enough of these trades will win the war and gradually enlarge the portfolio.
Wait for the high probability trade, aim, and fire. Don’t trade until you see the whites of their eyes, and above all, if you miss, cut your losses and fight again. If the picture below is your cup o’ tea, by all means, give Goldman and Uncle Ben the finger but be prepared for the carnage.
Eventually, Morgan’s Riflemen wore down the British army enough, through its guerilla tactics, that the rest of the world noticed. Baron von Steuben was brought to Valley Forge and taught the Colonials simple military order, discipline, advantageous engagement, and tactics. The rest is history. But again, what von Steuben taught should speak to the individual trader. Discipline. Order. Tactics. Engagement.
Know your perfect trade (tactics), know what market you want to trade (engagement), wait for that trade (discipline), and know what vehicle you want to use (order). The Patriot’s rifle changed the war. One shot, one kill, disappear to fight another day. As a trader we can learn from this strategy. One trade, one profit, fight another day!