The Art of War for Trading — Chapter 5: Energy, Momentum & Asymmetry
阅读中文版 (with Audio)Sun Tzu's Energy applied to trading: Direct vs. indirect tactics, energy consolidation, breakout momentum, and asymmetric payoffs.
🔊 Listen to Article (Chinese Audio)
The Art of War for Trading — Chapter 5: Energy, Momentum & Asymmetry
"In all fighting, the direct method may be used for joining battle, but indirect methods will be needed in order to secure victory." — Sun Tzu
Strategic & Financial Context
Energy explores potential and kinetic force. Potential energy is like a boulder perched on a mountain—once released, its momentum is unstoppable. Sun Tzu mandates combining Direct (Zheng) forces to fix the enemy and Indirect (Qi) forces to deliver decisive blows.
In trading, "Direct" force is core trend-following equity exposure, while "Indirect" force involves purchasing asymmetric options or capitalizing on high-conviction breakout momentum.
Wall Street Application
1. Energy Accumulation & Breakouts
- Volatility Contraction (VCP): Equities consolidating in tight ranges store potential energy over weeks.
- Momentum Release: As price breaks out on expanding volume, potential energy converts into kinetic momentum.
2. Combining Direct and Indirect Forces
| Component | Strategic Role | Market Asset Example | |---|---|---| | Direct Force (Base) | Stability & core exposure | Broad index ETFs, short-term Treasuries | | Indirect Force (Alpha) | Asymmetric explosive upside | Pivot breakouts, long OTM call options |
Trading Execution Rules
- Identify Volatility Contraction: Target tight consolidation bases preparing for energy release.
- Deploy Dual Structures: Keep 80%+ in Direct core assets, using <20% for Indirect asymmetric trades.
- Scale with Momentum: Add to winning trades as kinetic velocity expands.
Relation to Retirement Portfolios
Retirement portfolios rely on "Direct" forces for base income security. Adding a small fraction (<5%) of "Indirect" convex assets provides upside optionality to outpace inflation.