Book Review > The 36 Strategies of the Chinese for Financial Traders

This book is based on The 36 Strategies of the Chinese, an ancient classical Chinese text collated from sources dating back some 1800 years. Although many trading strategies are discussed, Guppy’s book is not just about trading techniques per se, rather it emphasises a philosophical approach to different ways in which the trader could strategically view the market to find trading opportunities.

One of the problems confronting traders in modern markets is that they are deluged with a huge amount of information. Information overload obscures opportunities and trades are often missed. The 36 strategies of the Chinese for Financial Traders, provides approaches which allow traders to push market noise aside and focus their attention on “the wider context of their relationships with the financial markets” and find opportunities which offer high probability trades.

The book is divided into two sections. The first section deals with strategies of advantage to be used when the trader is in a secure position. The second section discusses strategies of disadvantage, where the trader needs to defend his position in the market but still make a winning trade or at least minimise a loss.

Each strategy is set out in an orderly format. After opening the chapter with the translated quotation, Guppy provides a brief explanation of the strategy followed by some historical background on its origin. The substance of each chapter is a discussion of how the trader may apply the philosophy behind each strategy to find an opportunity in the market. This section provides s number of examples of trading techniques to show how the strategy may be applied. The applications are well illustrated with charts taken mostly from Australian markets with some from Singaporean, Malaysian and Chinese markets.

The approach of this book can be illustrated by considering Strategy Two, “Besieging Wei to save Zhao”. Guppy explains that the origins of this strategy are based on Chinese warring States in 353 BC. The basis to this strategy is that “it is better to wait for the enemy to reach his weakest point and then attack. If the enemy can be dispersed and exhausted, then successful attacks can be made against each separate enemy.“ The trader’s application of this strategy is: to look for market opportunities which are overlooked by others, the objective being to grow profits at a faster rate than the market by selecting stocks usually ignored by other traders. The trader can take advantage of the leverage in the low priced stocks which often move much more rapidly than their more highly priced counterparts, take a quick profit and move to another trading opportunity.

Experienced traders realise that success depends upon being disciplined psychologically to consistently act upon entry and exit signals. Such discipline is in turn dependent upon the trader’s philosophy of the market and how he analyses it and assesses each trading opportunity. What Guppy's book brings to the trader is the potential to expand his appreciation of the different market situations, which offer higher probability trades.

This very readable book provides many examples over a range of trading situations. While the work is unlikely to appeal to the general investor I would expect to find it on the bookshelf of active traders, particularly those using derivatives, who are looking for high probability trades which give them an edge in the market. Daryl Guppy has been one of the outstanding educators of traders in Australia and the Asian region for more than ten years and with this book has produced a work of exceptional depth and breadth, which could prove to be a classic text for traders.

Bill Dodd is a member of the AIA.