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 industry 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.

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 say strategies when they express tactics – “means by which a strategy is carried out”.

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 suits 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.

Our intraday trading strategy

“We take every HIGH PROBABILITY trade that fits market cycle, context and the economic calendar; we manage it procedurally whether the trade takes us in or out of the money, and a measured loss is acceptable”.

Conclusion

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

If high probability trades is our strategy, then everything else is tactics.

To Colonel, Boyd strategy was a compass, and tactics made the map.