Sun Tzu's Art of War Chapter 11: The Nine Situations

"Throw your soldiers into positions whence there is no escape, and they will prefer death to flight." — Sun Tzu

The Military Context

Chapter 11 deals with the psychological state of the army in different situations. The most famous is "Death Ground" (死地)—a situation where the army is backed against a cliff or river with no escape. Sun Tzu observed that soldiers in Death Ground will fight with terrifying ferocity because their only other option is death. It is the ultimate psychological manipulation to force victory.

The Wall Street Translation

In military history, placing yourself in "Death Ground" can create heroes. In financial markets, placing yourself in "Death Ground" creates bankruptcies. What is Death Ground in trading? It is borrowing money to trade (margin). It is putting your rent money into short-dated options. It is refusing to use a stop-loss until you get a margin call. In the market, extreme pressure does not make you fight harder; it destroys your rationality, makes you panic, and forces you to sell at the exact bottom. You must always preserve an escape route.

Actionable Trading Rules

1. Never Enter Death Ground: Never trade with money you need to survive. Never use excessive leverage. The only advantage a retail investor has over Wall Street is time—you don't have to report quarterly earnings. If you use margin, you forfeit that advantage and put a ticking time bomb in your portfolio.
2. Deep Ground (重地): When you are deeply in profit on a highly-researched, high-conviction trade, you are in "Deep Ground." Sun Tzu says to "plunder." Do not take tiny 2% profits. Let the massive winners run to cover the costs of your small losses.
3. Unify Your Soldiers: Sun Tzu says a general must manage a massive army as if leading a single man by the hand. In trading, your dollars are your soldiers. Do not have a chaotic, mixed strategy. Follow a single, unified, strictly disciplined Trading System.