The Art of War

* When someone considers winning they think of themselves as successful, but does success really stem from winning. In times of war, does a commanding general consider winning a war because they dominated majority of the battles or that they achieved their ultimate goal of the war but forfeiting most of the battles. Sometimes winning is not the focal point in any war but the ability to achieve success in every battle. The art of war is not a painting of men trying to fight each other with paintbrushes and canvases. Rather a work of art that summaries the philosophy, theories and strategies of Sun Tzu, not only can be used in war and on the battlefield but also in any situation where people stand to lose something, multipurpose, great! Most people blame losing on bad luck, words of a sore loser, but even Sun Tzu, whom wrote the book around 2000 years ago, knew that the first step or rather the first chapter to success is planning. You’d think they’d learn! * * At this stage, a villain would only think of preparing a plan that might lead them to victory but a hero would prepare a plan that can handle multiple possibilities which can turn a potential bad situation in to a moderate acceptable loss. And that is why good always triumphs against evil. Like any well thought out system or machine we require the blue prints and then parts. A car, for instance is a modern day miracle and irreplaceable part of our daily lives, but every car has some key components that are required for it to function, namely: the mechanics, the container, speedometer and rev meter. In the trading industry we also classify essentials into 3 sections: hardware, software and services. * * Hardware:
We can start with the organs of every car, the mechanics under the shell, in our case the computer. What makes a Bugatti any different from Maserati, except the price tag? Horsepower, the one thing that puts you ahead of the enemy when racing down Lynnwood road, your ability to push your machine further faster than anyone else. The only way to achieve this would be to build a computer that is capable of running multiple applications at the same time. So what do we look for in such a machine:

* Well the brain to any computer would be the CPU (Central processing unit), currently the best CPU on the market you can get would be an Intel Core i7, fast and stable but anything that is a Core i3 above should be perfect. If you’re on any level of computer wiz you should know that any Core i3 computer does not come cheap, and as many of you are still seedlings, I can understand that you if your tree doesn’t have many leaves. I can understand when you have bank balances of 2 digit figures at the end of the month that money don’t grow on trees. Therefore some might settle for mid-range to low-range CPU’s, like an AMD Athelon II which is cheaper by comparison and is fully capable of handling multiple programs for long periods of time, so don’t be ashamed un-affordable-Intel supporters. * Working together with the CPU we have the memory or RAM of a computer, the less ram you have the slower your computer will run. In my opinion, having a Core i3 processor with four gigabytes (Gb) of RAM should be sufficient, but for all those geeks out there or snobs, 8 Gb would be star quality. * The hard drive disk (HDD) is another key component that simply cannot be ignored, like any well-planned outfit requires a handbag. I mean you never see Kim Kardashian without her Gucci. Now for all those coach potatoes or movie maniacs have large disc capacity is a must, but for the rest of us simple-tins 150 Gb should be more than enough, as it is the cheapest you can get. Score! * The purpose for any “average” young adult to get a computer would be to go on Facebook or twitter, how predictable, but for the smart ones it would be to check up on stock prices and foreign exchange statuses, hint hint. For this we need our computers to support Internet, any sort of modem or wireless Internet device will be suffice as it is the speed that counts. * Next on the agenda would be monitors, most people would recommend that the bigger the monitor and the higher the resolution the better. Some more experienced traders favor having more than one monitor but this usually requires one to two graphics cards, not to mention a better motherboard and processor. One downside to having multiple monitors is that it just sounds price, even if you don’t know what it is. It’s like Versace, it’s expensive and pronounced weird to. The advantages of spending the extra money, even though spending money could never be seen as an advantage to less fortunate folks like us, would be that a graphics card would provide higher resolution for the larger monitors. Like diamonds, the bigger the better. * * Have you ever considered the difference between looking professional and being professional, and if there was a way you can achieve both at the same time without compensating either side? We can all look professional by dressing smart, that is the easy part but how many can truly say that they can be professional instead of act professional. With a computer it is easy to look professional, simply by adding a monitor or 2. Some professional traders like to have as many as 3 monitors, with the trading software in one monitor, charting in another and one that is free to do whatever else they need. For others one is more than enough. * * For all those trend lovers, there are only 2 styles of computers that one can pick from, like the sides of a coin. Desktop computer or Laptop, each with its own set of pros and cons. The desktop, which does not require a battery and can accommodate better specifications but is not portable. A laptop on the other hand can easily be moved around, but it requires a battery and is a lot more susceptible to damage and usually comes with fixed specifications. Therefore the choice is up to the driver, would you prefer manual or automatic. * * Software: * Now that we have all the mechanics of a computer sorted out we need to consider the software of our computer. Like any container, the structure is basic: we need an interior and frame on which the doors and windows are attached. And for a trading computer this would be the operating system, the trading and charting software, respectively. * * Operating systems: * The operating system is the main software that runs the computer, so that it does what you tell it to. Windows is obviously a very popular contender, coming up not far behind is the Mac OS and lastly we have Linux and Unix. Unix is not a very popular operating system in South Africa and does not have many users. As for Mac OS it does run a lot smoother and with a lot less glitches than Windows, unfortunately it usually requires a Mac computer. In any case, most people would recommend that you use Windows as it offers a wider range of software than any of the above-mentioned operating systems, in other words an all-rounder. It’s like jelly tots, they all the same thing but with different flavors, unfortunately operating systems do not come in one packet though. * * Now a debate would be which version of Windows should be used, a lot of the large corporations still use Windows XP as it is the most stable version of Windows, which has been released; Windows 7 is the newest and a relatively stable version that supports more software that XP, and is therefore recommended. * * Trading software: * The trading software is mainly used to enter and exit orders for the trader. It is also the software that is responsible for live streaming of raw data relating to the markets and their price changes. It is also the software that usually requires an internet connection, the faster you internet the smaller the lagging factor in your analysis, I’m sure you would want to know if Ferrari’s went on sale too, immediately! Some of the more popular trading software’s are Bracket trader, Ninja Trader and Zero Line trader. There are many others that you can find on the web, and should all come with a demo version. * * Charting software: * The charting software is the software responsible for turning your mince meat into hamburger patties, in other words, it takes the data from the trading software and turns it into charts that make it easier for you to understand and analyze. This is more of a monitoring software as it allows you to recognize market patterns easily by graphical presentation by combining past to present information. Some popular charting software’s are Sierra Chart, Trade Maven and ESignal. There are plenty more charting software that can be found on the Internet, that come with trial periods. * * The idea of describing the trading and charting software as the frame with the doors and windows of a car is to imply that the two are designed to work together, as they are interlinked and frankly, glued together. Every different trading and charting software offers different displays and features. Although, there is certain things that one should look for when shopping for software, namely: ease of use, flexibility and range of features. In the end, you should choose which ever serves you better. * * Services: * When feeling a little fast and furious on the road we tend to step down on the accelerator, giving it a little push. If you’re not completely ignorant, you would know that the higher you rev the faster you accelerate, being a girl is not an excuse. Similar to your Internet speed, the faster your Internet the more accurate your analysis. And the speedometer, obviously, shows the speed that you control, just like the brokers that only enter and exit orders at your command. Kind of feels like magic doesn’t it. * * Internet Service: * Internet is usually divided two parts, your service provider and your landline. Most landlines are provided by a monopoly in the industry, like Telkom here in South Africa, the faster the line you rent the more expensive it gets. There are many service providers that you can find on the Internet at a monthly fee; some of the more popular providers are Mweb, Afrihost and Axxess. * * There are also other forms of Internet that you can acquire like 3G wireless Internet that is provided by all major cellphone carriers. Usually your 3G Internet speed is dependent on signal and heavily factored by Internet traffic, not to mention geographical barriers. 3G Internet is usually less price but has capacity restrictions. Just remember that we live in South Africa so if you have problems with getting Internet don’t get angry, it is apparently normal. There are certain qualities that you need take in to consideration before making a choice, these factors are: speed, stability and unrestricted access. * * Brokers: * Even though we would like to believe that we could do it all, sometimes we just can’t and…yes it is because not all of us are certified. This is where an online broker comes into handy. Usually, brokers are divided into two general groups, namely: * * Full service brokers, like your major investment management or asset management firm offers a wide range of products and service. From what to invest to what position to take in an investment, they offer advice and guidance that will aid you in making the best choice possible. * Discount brokers, on the other hand is a much more affordable option, with a lot less service. They do not offer any investment advice and handle only the administrative part of the transaction. This is the type of broker you should be looking for if you want to start trading on your own. * * Since discount brokers only offer administrative services, they don’t require huge office buildings and meetings with the clients. Therefore they can usually be found on the Internet. There are two main categories of online brokers: * * Web based online brokers, are quite simple to understand. Normally what happens is you enter your order to buy or sell on the market right from home, on your web browser. This type of brokerage requires no third party program, simply register on their company website and trade using your user name. Some disadvantages of this type of brokerage is that they will hold your order until payment comes through, this will result in either you getting a better or much worse price, depending on your luck. Either way it is not the price you put in your order for. Another disadvantage might be that the brokerage firm already has the inventory for the order that you put in, and instead of buying off the market they sell you their stocks. Not only do they profit from the price difference but they also save the fees from using the Electronic Communications Networks, which they charge you, more commonly known as ECN. This means that the web-based brokers also make use of a third party. * With direct access online brokers you would be dealing direct with the broker, market maker or ECN. This type of brokerage operates through software, either offered by the brokerage firm or using third party software that they are compatible with. Using this type of brokerage you will control all your orders and deal directly with the market. Using direct access brokers usually requires a small compensation, what doesn’t these days. You will also be required to pay for the third party software if required. This third party software is what we described earlier as trading software. Some brokerage firms also offer their own charting software, although this may seem convenient it might not be as easy to use and interpret. * * Forex: * We all know that in investment there is more than one type of trading, but in this section we will focus on the forex section, otherwise known as foreign exchange. There are certain types of traders that you will find online, some of which are not recommended due to legality concerns. There are five types of forex brokers that can be found online: * * The bucket shop is a broker that deals with mainly futures and options in foreign currencies, without actually participating in the actual market. What they do is they take the opposition of the retail traders and bet against these traders, like a bookie. This form of broker is of questionable legality and is therefore not recommended for beginners. * Book makers are in some ways the same as bucket shops, one similarity is that they also do not deal directly with the market. The main difference is that they make the profits on the difference in prices and not actually by making the right bet. A simple example of a book maker is Delta Index, and this type of dealer is also not allowed in many countries. * Retail market makers are the brokers that you would find most often online and the one that most traders use. They provide wide range of services and use a long list of different effective tactics that should be left for another day. Since they are so user friendly, they are very suitable for beginners. Some common examples of retail brokers are FXCM, Ifx and Gain Capital. * The Institutional market maker or dealers are in very close connection with the market. It is perhaps the same as retail market makers but requires orders a large quantities, usually for institutions. A good example would be FXALL, which is also relatively basic to operate. * * In the book, art of war, Sun Tzu came up with 36 different strategies and divided them into 6 main categories. These 6 main categories were divided according to the 6 most possible situations that are likely to occur during war. He was prepared. And now we have discussed what you need to be prepared to trade from home, to go to war. But one must not ignore certain constraints, for example, off the top of my head, money constraints. Being successful is making the best of what we have and you should therefore consider the specifications mentioned only a recommendation; after all you cannot be broke before you even start to trade. Every plan needs a back-up plan, just in case your luck runs out, this plan would be a telephone, which should be relatively fool proof. It is only there in case of an emergency. Either way you know what you need to have the stealth of ninja on the stock market, and can prepare to be a Trading Typhoon! * *
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