Strategy and tactics are often confused by traders

Strategy and tactics, what’s the difference?

In the military fast jet world determining a clear strategy was the responsibility of the Generals. Throughout the Cold War period, most Western countries got it wrong.

Politics and aircraft manufacture drove strategy.

In the 70’s The United States Air Force (USAF) allowed a different approach. They put strategy above everything else. The outcome was the achievement of world air superiority, which they maintain to this day.

The USAF influence was from the “Fighter Mafia” and fighter pilot mavericks such as Colonel John Boyd. They realised the F15 and F16.

Colonel John Boyd, USAF fighter pilot, maverick and strategy.
Colonel John Boyd, USAF fighter pilot, maverick and strategy (ist)

A strategy is (almost) immovable. It is a principle on which to base all tactics.

As in warfare, a trader determines a strategy from which they can hang many tactics.

Most trading websites mention strategy when they mean tactics.

Low probability low risk

All beginners enter low probability trades. Reversals and trades that have a 40% or less chance of success.

We associate such trades with low risk which suites beginners that are frequently risk-averse. However, stops are often too close further reducing the probability.

Moreover, to counter the low probability when such a trade is successful the bet has to be held for a distant target to balance the strategy.

Medium probability medium risk

From an entry bar rather than a signal bar. However, an entry bar without good trade premise and thus a 50% probability. Traded by beginners and intermediate level traders.

High probability high risk

A trade that is (1) with a trend or (2) in the ‘probable direction’ from a significant break in a premise (3) or opposite in direction to an exhaustion bar.

Stops are distant which in turn provides high risk.

Can provide a 60% probability of success, better if we scale-in correctly. Almost exclusively traded by experts.

My intraday strategy for my chosen instruments is:

“Take every qualifying HIGH PROBABILITY long or short trade opportunity.”

Overview

If the low, medium and high probability intraday trades each represent a strategy by definition, everything else is tactics.

“Tactics are disposable. A strategy is for the long haul.” Says Seth.

Our strategy needs to be our own, true to our heart. That is something Colonel Boyd may have agreed.

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