Apply Thirty-Six Stratagems to the Stock Market

中文 | English

Overview

The thirty-six stratagems is a Chinese essay used to illustrate a series of stratagems used in politics, war and civil interaction.

The stock market is like a war zone. Therefore, in this article, I will explain each stratagem individually and try to apply it to the stock market.

Deceive the heavens to cross the sea (瞒天过海)

Explain: Mask one's real goals from those in authority who lack vision by not alerting them to one's movements or any part of one's plan.

Applications of this stratagem in difference aspects:

• Business Stragegy: Suppose a company wants to launch a new product in a competitive market. If the company were to reveal its plan to competitors or investors, they might try to copy the idea or prevent it from succeeding. To deceive the "heavens" (the competitors or investors), the company migth hide the real product launch behind a less sigificant project. They could market a differect, smaller product while secretly working on the more valuable product. When the product finally launches, the competitors are caught off guard, and the company gains an advantage.
• Person Life or Social Situations: In a social context, imagine someone who wishes to get ahead in their career but knows that openly showing their ambition cause jealousy or opposition from their peers or superiors. Instead of making their intentions clear, they might take on tasks that seem trivial or unrelated to their real career goals. Over time, they gather influence, build relationships, and when the time is right, they make their big move toward their desired position, catching others by surprise.

This stratagem teaches me two things:

1. Hiding your true plan by using a decoy or by keeping your moves secret.
2. Avoiding drawing attention to yourself and prevent those in power from interfering with your success.

The application in the stock market:

• Pump and Dump Scheme: In a pump-and-dump scenario, a trader (or group of traders) might use this stratagem to inflate the price of stock in order to sell off their shares at a profit before the price crashes. Here's how it works:
  • Deceptive Tactics: The traders could spread misleading information about a stock's future potential (for example. rumors of a breakthrough product or acquisition), creating excitement in the market. The deception catches the attention of smaller investors who rush to buy the stock.
  • Hidden Objective: While the price rises based on false optimism, the traders secretly unload their shares at the inflated price, causing the value of the stock to peak aritificially.
  • The Reveal: Once the traders have sold off their shares, the stock crashes as the truth about the company's prospects comes to light. The original traders profit while others are left with losses.
• Using False Signals to Mislead Competitors: Market makers or institutional investors often control large portions of stock and can manipulate the supply and demand to their advantage:
  • False Buy or Sell Orders: A market maker might place a large order to buy or sell stock, create the illusion of a strong trend in the market. Other traders, thinking this is an indication of a major shift in price, may follow the signals and trade accordingly.
  • Hidden Agenda: In reality, the market maker does not intend to execute these trades; they are just trying to mislead others into moving the price in a direction favorable to them. Once the price moves in the intended direction, the market maker can act on their actual positions, buying or selling at the newly adjusted prices.

The essence of this stratagem in stock trading lies in deception and diversion. Traders or investors can mask their true intentions to avoid early interference from others in the market. By hiding their actions or creating distractions, they can acquire assets at a favorable price, only revealing their real intentions when it is too late for others to act or when they are in a position to benefit from the market's delayed response.

Besiege Wei to Rescue Zhao (围魏救赵)

Explain: When the enemy is too strong to be attacked directly, attack something they cherish. The idea is to avoid a head-on battle with a strong enemy, and instead strick at their weakness elsewhere. This will force the strong enemy to retreat in order to support their weakness. Battling against a tired and dispirited enemy will give a much higher chance of success.

Applications of this stratagem in difference aspects:

• Business: Suppose a large company (Company A) has a significant hold in a particular market and is too dominant to challenge directly. Instead of trying to compete directly, a smaller competitor (Company B) could develop a unique product that appeals to a different segment of Company A's customer base. This might force Company A to divert resources to counter this new offering, weakening its focus on its primary market and giving Company B an opportunity to establish itself in a less competitive area.
• Negotiation: In a negotiation setting, if one party is holding firm at a particular point (e.g. a high price), the other party could shift focus to terms of the deal that the opponent might care about more, such as timeline or quality standards. By emphasizing flexibility or concessions on these points, they might force the other party to compromise on the sticking point (the price), effectively "rescuing" their own interests without a head-on confrontation.

The application in the stock market:

• Sector or Industry Alternatives: When a leading company (e.g. Company A) is too dominant and its stock price is highly volatile and overvalued, it might be risky to invest directly. Instead, you could "besiege" by investing in companies within the same supply chain or sector (e.g. Company B) that support or benefit from Company A's success. For example:
  • If a large company like Apple is the dominant player in consumer electornics, its supplier (e.g. companies that provide chips or screen components) may benefit from Apple's performance.
  • By investing in these "secondary" companies, you gain indirect exposure to Apple's success with potentially less risk and volatility, as these suppliers' performance is often closely tied to the tech giant's growth.
• Targeting Alternative Markets or Geographies: Sometimes, a large company may have a strong presence in a particular geographic region or market, making it hard to enter directly. Instead, investors can focus on regions or markets where this large company has less dominance. For example:
  • This could apply to a company like Tesla in electric vehicles: rather than investing directly in Tesla, investors can consider regional electric vehicle manufactures in China or Europe who are expanding within those specific markets.
• Investing in Substitute Sectors or Commodities: Sometimes, a company or sector’s position is too strong to confront head-on, so investors can focus on substitute sectors or commodities that will benefit indirectly if that sector faces challenges:
  • For example, if the price of oil skyrockets, it could make traditional energy stocks too expensive or risky. Investors could instead invest in renewable energy companies (e.g., solar or wind) or energy storage companies, anticipating that high oil prices will drive demand for alternatives.

The essence of "Besiege Wei to Rescue Zhao" in stock market terms is to find indirect ways to benefit from a strong player or trend without directly confronting it. By strategically selecting investments that are linked to but not directly competing with a market leader, investors can position themselves to capitalize on growth opportunities while managing risks and potentially finding undervalued investments.

Kill with a borrowed knife (借刀杀人)

Explain: Attack using the strength of another when in a situation where using one's own strength is not favourable. For example, trick an ally into attacking them or use the enemy's own strength agianst them. The idea is to cause damage to the enemy via a thrid party.

Applications in different aspects:

• Business Example: Rival Product Launch： Imagine two company, A and B, competing in the tech industry. If Company A wants to weaken Company B without a directly comfrontation, it might partner with another company, C, that has access to the same customer base as Company B. By funding Company C's marketing or product efforts, Company A can use Company C's influence to draw custormers away from Company B without directly engaging in a costly competition.
• Politics Example: Cold War Proxies: During the Cold War, the United States and the Soviet Union often engaged in proxy wars, supporting different factions in third countries (Such as Korea, Vietnam, and Afghanistan) rather than directly fighting each other. This allowed each superpower to weaken the other's influence by avoiding the risks and costs of a full-scale war.

Application in the stock market:

• Using Media Influence to Impact Stock Prices: Major investors sometimes use media to influence stock prices by disseminating news that will either increase or decrease investor confidence in a target stock. For examples:
  • Short-selling Using Negative Public Sentiment: Investors who short-sell (betting that a stock's price will fall) often look for ways to spread negative sentiment to accelerate the price drop. They might borrow the "knife" of public opinion by highlighting regulatory issues, lawsuits, or controversies surrounding the target company. These negative rumors or news stories can sway the market sentiment, causing other investors to sell their shares, which benefit the short-seller as the stock price declines.

In these cases, the concept of "killing with a borrowed knife" works by turning market sentiment, third-party resources, or competitors' weakness into tools for profit or strategic advantage without directly bearing the costs or risks.

Wait at Leisure While the Enemy Labors (以逸待劳)

Explain: It is advantageous to choose the time and place for battle while the enemy does not. Encourage the enenmy to expend their enery in futile quests while one conserves their strength. When the enemy is exhausted and confused, attack with energy and purpose.

Applications in different aspects:

• Business - Competitive Pricing Strategy: In business, established companies sometimes face aggressive new entrants who engages in costly marketing and promotional campaigns to capture market share. The established company migth choose to maintain its pricing strategy, avoid overspending, and allow the newcomer to exhaust resources in the battle for attention. Once the newcomer's funds dwindle and they cannot keep up the marketing pressure, the established company may launch its own, more effective campaign. By conserving resources and timing the response well, the established company can regain its marketing share without excessive spending.
• Negotiation Scenario: Imagine two parties in a negotiation where one side is eager to close the deal quickly. The more patient negotiator can allow the eager party to make offers and concessions, eventually leading to a point where the other party is fatigued or desperate. At this point, the patient negotiator can leverage their calmness and stronger position to secure a favorable aggreement, having waited until the other side was at a disadvantage due to their haste.

This stratagem's key point is letting the opponent act impulsively and tire themselves out while staying alert and prepared and then, at the right moment, a decisive action can be taken to achieve victory or gain a substantial advantage.

The application in the stock market:

• Waiting for Market Corrections: During a bull market or a speculative bubble, prices of certain stocks can become inflated as investors rush in, driven by hype and fear of miss out (FOMO). A patient investor may choose to wait for a correction, when prices fall due to panic selling or exhaustion among investors who bought at inflated levels. Once the bubble bursts or the correction occurs, the patient investor can buy the stock at a fair or discounted price, conserving capital and reducing the risk of overpaying.
• Taking Advantage of Market Volatility: Markets often experience cycles of high volatility due to events like earnings report, economic data release, or geopolitical tensions. In these periods, day traders or speculators may buy and sell frequently, driven by market swings and emotions. Long-term investors can stay patient, letting short-term traders exhaust themselves reacting to each small price movement. Once the volatility subsides, long-term investors can enter the market with a clear analysis and a stable outlook, potentially buying shares at prices impacted by short-term trading activity.

In essence, this stratagem in the stock market encourages investors to stay calm and avoid following the crowd. By waiting until the hype dies down or until other investors are fatigued, a disciplined investor can enter the market at a time when opportunities are clearer and risks are reduced.

Loot a buring house (趁火打劫)

Explain: When a country is beset by internal problems, such as disease, famine, corruption, and crime, it is poorly-equipped to deal with an outside threat. Keep gathering internal information about an enemy. If the enemy is in its weakest state, attack them without mercy and annihilate them to prevent future troubles.

Applications in different aspects:

• Military Strategy: Attack an enemy when their internal resources are depleted, or they are distracted by internal conflicts.
• Business: Acquire or overtake a company when it faces financial trouble or leadership instability.
• Personal Life: Take advantage of opportunities when others are distracted or in turmoil.

In some cases, helping to extinguish the "fire" (offering assistance rather than exploiting weakness) can create goodwill and strengthen your position in the long term.

Applications in the stock market:

• Investing During Market Crises: Buy high-quality stocks at heavily discounted prices during market downturns caused by fear or uncertainty. For example: In COVID-19 Pandemic (2020) period, the stock market plunged in March 2020 due to fears surrounding COVID-19. Investors like Warren Buffett and others bought stocks of solid companies like Apple and Amazon at lower prices, benefiting from the recovery.
• Targeting Troubled Companies: Look for companies with temporary issues that are likely to recover in the long run. For example: In 1997, Apple was struggling financially and operationally before Steve Jobs returned. Savvy investors who bought shares during this crisis reaped massive rewards when Apple rebounded and became a tech giant.
• Capitalizing on Industry-Specific Crises: Identify strong players within the troubled industry and invest in them when their prices are low. For example: In the Oil Price Crash (2020) period, The energy sector experienced massive sell-offs during the oil price collapse of 2020. Investors who bought stocks in strong oil companies like ExxonMobil or Chevron during the crisis benefited from their eventual recovery.

Note that understanding whether a company or market’s troubles are temporary or permanent.

Make a sound in the east, then strike in the west (声东击西)

Explain: In any battle, the element of surprise can provide an overwhelming advantage. Even when face-to-face with enemy, surprise can still be employed by attacking where they least expect it. Create an expectation in the enemy's mind through the use of feint. Manipulate the enemy to focus on resources somewhere before attacking elsewhere that is poorly defended.

Applications in different apsects:

• Warfare: Napoleon deliberately weakened his right flank, creating the illusion that his army was vulnerable. This "sound in the east" encouraged the opposing forces (the Russo-Austrian coalition) to concentrate their attack there. While they committed their troops to this apparent weak point, Napoleon launched his main attack at their center and left flank (the "strike in the west"), leading to a decisive victory.
• Sports: In soccer, a team might focus their attacks on one side of the field, drawing the defense toward that side ("sound in the east"). Then, through a sudden cross-field pass or switch of play, the ball is sent to a player on the opposite, less-defended side of the pitch ("strike in the west"), allowing for a goal-scoring opportunity.

Applications in the stock market:

• Company Announcements to Shift Attention: A company has poor quarterly earnings, which could lower its stock price. To divert attention, the company announces an exciting new product launch, acquisition, or a major partnership ("sound in the east"). Investors focus on the positive news, and the stock price stabilizes or even rises temporarily despite the poor financial performance. Meanwhile, the company uses this time to quietly address the financial issues ("strike in the west").
• Price Movement Traps: Institutional investors can deliberately create patterns that attract retail investors. For instance, a stock might be pushed into an upward trend ("bull trap"), making it appear to retail investors that the stock is a good buy.

Create something from nothing (无中生有)

Explain: A plain lie. Make somebody believe there was something when there is in fact nothing or vice versa.

Applications in different aspects:

• War: During the Warring States period in ancient China, a small Zhao army was encamped near a river when a large Qin force arrived to attack. The Zhao general lit numerous campfires and beat war drums at night to give the illusion of a much large army, scaring the Qin into retreating. In reality, the Zhao were outnumbered and desperate. The Zhao created "something" (a large army) from "nothing" (their small force), turning psychological pressure into a defensive weapon.
• Artificial Scarcity in Business: Companies sometimes make a product seem scarce or exclusive to increase its perceived value. For example, when tech companies launch a new product, they may claim its "almost sold out", even if there's plenty of stock. They create illusion of "nothing" (scarcity) when there is actually "something" (abundant supply) to boost demand and urgency.

The application in the stock market:

• Spread Rumors: Stock manipulators may spread positive or negative rumors about stock to influence their prices.
• Fake Buy or Sell Orders: Traders using algorithms may send out buy or sell orders to create the illusion of high demand or supply.This is called "spoofing" and can trick other market participants into acting on perceived trends. In Chinese A-share, manipulators often use this stratagem in the period of Call Auction (9:15~9:25). For example, big traders want to sell their shares. They may send out a big fake buy order to attract retail investors to buy the stock. And when it will be 9:25 soon, they will cancel the fake buy order and send out a true sell order.
• Market Theme and Concept Stocks: Big traders often exploit market-wide themes or "concept stocks"(e.g., AI blockchain, new energy) to draw attention to certain stocks. They create the illusion that certain companies are leaders in these fields, even if the fundamentals are weak or unrelated. Retail investors, believing in the hype, buy into these "theme stocks", pushing up these prices. Once the stocks become overbought, big traders dump their holdings. Retail investors suffer significant losses when the theme fades, and the stock prices collapse.
• Price Manipulation in Low Liquidity Stocks: Big traders target stocks with low liquidity, where their buying or selling activity can have a significant impact on prices. They push the price up with heavy buying and then exit after retail investors jump in. Manipulation of small-cap stocks in the A-share market is common because it requires less capital to create significant price movements.

Openly repair the gallery roads, but sneak through the passage of Chencang（明修栈道、暗度陈仓）

Explain: Deceive the enemy with an obvious approach that will take a very long time, while ambushing them with another approach. It is an extension of the "Make a sound in the east, then strike in the west" tactic, but instead of merely spreading misinformation to draw the enemy's attention, physical decoys are used to further misdirect the enemy. The decoys must be easily seen by the enemy to draw their attention while acting as if they are meant to do what they are falsely doing to avoid suspicion.

Applications in different aspects:

• Historical Example: This stratagem itself originates from an event during the Chu–Han Contention (206–202 BC). Liu Bang, the eventual founder of the Han Dynasty, was fighting Xiang Yu. After being expelled from Guanzhong, Liu Bang pretended to rebuild a direct and obvious route (gallery roads) to recapture the region. This caught Xiang Yu's attention. However, Liu Bang secretly used an alternate, hidden route (the passage of Chencang) to surprise and retake Guanzhong while Xiang Yu's forces were distracted. The visible effort to rebuild the roads made Xiang Yu focus his defense on the obvious path. Meanwhile, Liu Bang secretly used an unexpected path to attack successfully.
• Business: A large corporation may publicly express interest in acquiring Company A, creating a buzz in the market and driving up Company A's stock price. Competitors focus on countering this move or preparing their own bids. Meanwhile, the corporation secretly negotiates to acquire Company B, a less prominent company with complementary assets, at a lower price. This deal strengthens their market position without arousing suspicion. The interest in Company A (repairing gallery roads) serves as a diversion. The acquisition of Company B (sneaking through Chencang) achieves the true objective.
• Playing Chess: In a chess game, you might deliberately move a piece to make it seem like you are preparing a strong attack on one side of the board. Your opponent starts focusing on defending that side, shifting their resources there. However, your real strategy is to weaken their defenses on the other side and launch an unexpected attack there. The visible threat on one side of the board acts as the gallery road. The real attack on the other side is the passage of Chencang.

Applications in the stock market:

• Insider Trading: A large institutional investor might sell off a portion of their holdings in a company, making it appear as though they are losing confidence in the stock. This action drives the stock price down as other investors panic and sell. Meanwhile, the same investor secretly buys back shares at the lower price through different accounts, increasing their holdings. When the stock price eventually rebounds, the investor profits significantly. The visible selling (repairing gallery roads) creates a false narrative of declining confidence. The secret buying (sneaking through Chencang) ensures the investor profits from the misdirection.
• Manipulating Daily Price Limits: In the A-share market, the daily price limit (typically ±10% of the previous day’s closing price) often creates fertile ground for manipulation. A manipulator buys heavily at the opening to push a stock close to the upper limit (+10%), signaling strong bullish sentiment to retail investors. This attracts speculators who fear missing out (FOMO) and jump in to buy. The manipulator then sells off their holdings near the peak of the price limit, taking advantage of the buying frenzy they created. Once the selling pressure sets in, the stock fails to sustain its upward momentum and declines, leaving latecomers with losses. The visible buying and upward momentum (repairing gallery roads) attract attention and drive speculative buying. The hidden selling at high prices (sneaking through Chencang) secures profits while retail investors are left holding overpriced shares.
• Wash Trading to Create Fake Liquidity: Wash trading (buying and selling the same stock repeatedly to create the illusion of high trading volume) is another tactic that fits this stratagem. A manipulator engages in wash trading to create the illusion of high liquidity and interest in a particular stock. This draws retail investors, who assume the activity signals strong institutional interest or positive news. Once the stock price rises due to increased buying from retail investors, the manipulator sells their pre-purchased shares at a profit. The stock’s price eventually falls as the artificial volume disappears, leaving retail investors exposed to losses. The visible trading activity (repairing gallery roads) convinces retail investors to buy. The hidden selling of pre-acquired shares (sneaking through Chencang) allows manipulators to profit.

Watch the fires burning across the river（隔岸观火）

Explain: Delay entering the field of battle until all other parties become exhausted by fighting amongst each other. Go in at full strength and finish them off.

Applications in different aspects:

• Business - Market Competition：Imagine a tech company entering a competitive market where two major players are fiercely battling each other with aggressive pricing wars and extensive marketing campaigns. A third company, instead of directly entering the fray, observes the market from the sidelines. It focuses on developing a superior product and building its resources. Once the two competitors have exhausted their budgets and tarnished their reputations through their rivalry, the third company launches its product with a strong, well-timed campaign, capturing the market with minimal effort.
• Social- Mediation in a Group Conflict: Imagine two groups of people in a workplace or social setting are locked in a heated argument. Instead of jumping in immediately to take sides, a wise observer waits and watches as both groups exhaust their arguments and frustrations. When the time is right, this person steps in as a mediator with a calm and rational solution, gaining respect and authority over the situation. This approach ensures that the mediator doesn’t become entangled in the initial chaos but emerges as the voice of reason when everyone else is too tired to argue further.
• Game - Battle Royale Games: In battle royale games like Fortnite, PUBG, or Apex Legends, players often employ this strategy. Instead of engaging in every fight, a smart player stays on the outskirts of the conflict, letting other players fight each other and deplete their health and resources. Once the remaining players are weak, the observer swoops in with full health and ammunition, easily eliminating the survivors.

Applications in the stock market:

• Waiting During Market Turmoil: When the stock market experiences a sharp decline or extreme volatility due to geopolitical events, economic crises, or panic selling, many investors panic and sell their holdings at a loss. A strategic investor can "watch the fires burning across the river" by staying calm, holding their position, and not getting swept up in the chaos. As the dust settles and prices stabilize, they can identify undervalued, high-quality stocks and invest at a favorable price. This approach reflects patience and the ability to avoid impulsive decisions, ultimately benefiting from the market recovery.
• Manipulating Price Floors and Ceilings: Manipulators often create false support levels (price floors) or resistance levels (price ceilings) to influence retail investors’ decisions. By watching retail behavior, manipulators wait until retail investors are "trapped" in their positions—either holding on as prices fall further or selling prematurely before a major upward move. When retail investors become overly bullish or bearish, manipulators strike with sudden, large transactions to reverse the trend and catch retail investors off-guard. Example: A stock’s price is driven into a narrow trading range. Retail investors assume the stock is "safe" or "stuck." Then, manipulators suddenly push prices higher, luring retail investors into buying before dumping shares again.
• Observe Manipulators’ Moves: Watch for signs of manipulative behavior, such as unusually high trading volumes, rapid price swings, or news designed to create excitement or fear. Be patient and let the manipulator’s "fire" burn out. Often, manipulators dump their shares quickly, leaving an opportunity for retail investors to buy the stock at a fair price after the dust settles. Action Plan: If a stock experiences a sudden price surge followed by stagnation or decline, avoid chasing it. Instead, wait for a clearer picture before investing.

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References

• Thirty-Six Stratagems Wiki