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The shield and the sword. How do these apply to trading?

Updated: Nov 14, 2023

21st April 2022

As a start, I must acknowledge that the metaphor used here is not my own original idea. I got it from Steven Goldstein (@Alphamind101), who is the mindset coach I have been consulting for the past 18 months. In our coaching sessions, he has often referred to the dance that traders need to balance between "shield and sword".

I was reminded of this comparison over the Easter weekend when I took my kids to Arundel Castle in West Sussex, and we watched a medieval battle display.

As traders, we have a metaphorical sword and shield at our disposal. It's crucial that we use them properly together and that we maintain them well. Let's unpack this idea a little more:

The Sword:

The sword is what we use to attack with. From a trading perspective, this refers to our decisions to buy or sell when we see opportunities to advance our P&L curve. This is when we take on risk. We expose ourselves to risk but also give ourselves the opportunity to gain on our opponent.

We sharpen our trading "sword" in various ways. Trading only high-probability setups is equivalent to a sharp sword. Lower probability setups are equivalent to a blunt, bent sword. Do you want to fight with a sharp sword or a blunt sword? Always stick to high-probability setups if you want to be fighting with a sharp sword.

Trading Mindset

Our mindset is also a component of the "sword". Maintaining a positive, healthy mindset is an important aspect of trading. You'll generally trade well when you are in a good headspace. It's important to protect your mental well-being as a trader, just as it is important to keep your sword sharpened for battle.

Out of battle times, you want to be sharpening and maintaining your sword in top condition. From a trading perspective, I see this as having out-of-market hours routines and screening processes to look for opportunities. Having a disciplined process to spot opportunities when they present themselves. Practising (backtesting). Scanning. Doing your research.

During battle time, you then arrive ready and prepared to take on the market with a sharp sword.

The Shield:

The shield is all about protection. It's that barrier that defends us from harm. From a trading perspective, our shield is our risk management process. It's a vital component of our armour. Having no shield makes us vulnerable.

The components of a trader's shield are stop losses, position sizing, overall portfolio risk and money management. It is vital that your trading process incorporates all of these aspects as part of your defence mechanism (shield).

Whenever I hear of trading disasters, it is inevitably because the shield failed to protect the trader from danger (or perhaps the trader didn’t have a shield to begin with).

Much like in a medieval battle, one failure by the shield can be fatal. It is absolutely vital that you use the shield correctly to protect yourself from danger.

Profit, loss, risk

We also need to maintain our trading shield. How do we do this? We stick to a disciplined risk management process. We use stop losses. We manage greed. We never risk more than a small percentage of our trading capital on an individual trade. And we always make sure that our overall portfolio risk is contained to a defined maximum amount.

As traders, we want to use the sword and the shield together to advance our profit and minimise our losses. Remember, you can't fight if you have a sword through your heart. So use the shield well to protect yourself, and only attack with the sword when a gap opens up for you to do so.


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