Thursday, March 11, 2010

Strategy and Tactics

Dr Brett Steenbarger, writing in explains the concept of Strategy and tactics in Trading.

He writes: "Many trading problems--and misunderstandings--result from a confusion between trading strategy and trading tactics.
First let's talk about Grand Strategy. Grand Strategy frames our most important values; it expresses our broadest aims and thus guides the specific strategies that we follow."

To realize its Grand Strategy, the business must engage in a variety of smaller Strategies.

The way the business implements its Strategies is through Tactics.

For a Trader:

"The Grand Strategy of a trader represents his or her fundamental way of viewing markets and edge in the marketplace. Trend following is a Grand Strategy, as is mechanical systems trading, Elliott Wave trading, order flow trading, or trading day structures from auction theory. A trader's Grand Strategy captures how he or she views markets and defines opportunity. "

The trader's Strategies will define how he or she finds opportunity in the present set of market conditions. For example, my Strategies as a portfolio manager might be to buy dips in the stock and commodities markets because I view this as a cyclical bull market. The strategy will change as my perception of the market changes.

Brett says: "When it comes to Tactics, I as a trader will be even more flexible. .... my Tactics could lead me to add to positions on a pullback in the stock and commodities markets.

The conclusion is:

Many traders fail because they jump from Tactic to Tactic, without a clearly formed Strategy and without an overarching, guiding Grand Strategy. They are focused on setups, not ideas.

My Notes: All of us should do this exercise - What is my Grand Strategy ?  What are my current strategies to implement the Grand Strategy, and, What are the tactics I am using in recent trades. If you feel comfortable, please share your ideas.



tushki said...

sir pls suggest me level for Bank Nifty for a 1-2 week time frame..i had short sell it at aoound 8800..

sam said...

sir ji

Ravi Chandra said...

Very well said by Dr.Brett Steenbarger. Dividing your trading strategies into long term goals (grand strategies), medium term goals & short term goals (tactical goals) can really make your trading a highly disciplined activity. It is part of any tactical business planning which allows you to remain focused on your observations and goals, especially necessary in highly intensive activities like trading.

shan said...

It is wrong to give the title of 'trader' to an excited onlooker with money in pocket to "bet" in the stock market like he would have loved to have the trill of throwing peanuts at a caged lion. It has become a motivating thing to call one-self a trader. A trader, like a fire-fighter or a boxer or a pilot has to have some training and discipline. It is not about money. It is about method and mental setup. Money is only a symptom.

Having wings is not flying. Fluttering the wings too is not flying. Running on the cliff to launch in air is also not flying. Neither is the rushing of adrenalin. Collectively it may be flying.

Talking and reading technical indicators has become a fad. Few understand that there has to be a comprehensive simple binding strategy / philosophy of trading. Tools etc are only bricks in it.