A strategy chooses where you will play and how you will win based on your edge over your competition. A strategic theory must be coherent, actionable, and doable. You must be able to translate it into actions. Planning does not need that level of coherence. A plan is simply action steps decided on without the context of a complete overall systematic process and strategy. A plan should come after a strategy and based on it, and be written to express the execution of the edge of a specific strategy.

A plan can simply be a wish list of what you hope to do in the future. A plan can be written with no context and outside any framework. You can have a plan to buy an S&P 500 index fund and hold it for profits but with no strategy on why this will work or what your holding time frame will be. A strategy on the other hand would be to by the S&P 500 index on a dollar cost averaging basis each month and hold it for 20-years as that is typically a profitable strategy almost all the time based on historically data. A plan should be defining how you will specifically execute your strategy based on your edge. You can have a plan without a strategy but you also will have no edge.

A strategy is a way to quantify how to be profitable or win a game that has forces that you can’t control. It is the framework that defines the execution of actions that lead to success. Plans are deciding what you will do, a strategy defines how you will win. Your strategy defines you outcome, your plan maps out your execution of that strategy.
A plan defines how you will stay disciplined in your actions while a strategy defines how you will beat your competitors. Plans alone are just playing to play while a strategy quantifies how you will win the game. Plans can be comfortable because they are simple but a strategy is based on proven principles in advance to execution.
You can’t prove that your strategy will be successful in the short-term but a valid edge will play out over the long-term. Understand the logic of your strategy, what has to be true for this to work? You need a process for refining, adjusting, and optimizing your strategy over time.

 

A trading strategy would be beating the S&P 500 index performance using backtested moving average signals to stay long in uptrends in price action but go to cash during downtrends using the 200-day moving average as an end of month signal.

 

A trading plan based on this strategy would be as follows:
  • Buying SPY at the end the month on the last day when price closes over the 200-day moving average with a 20% position size of total trading capital.
  • Execute the signals before the close on the last day of the month that the market is open.
  • If already in, continue to hold SPY if price closes above the 200-day moving average on the last day of the month.
  • If the price of SPY closes below the 200-day moving average on the last day of the month then exit the position and go to cash.
  • If the price of SPY continues to close below the 200-day moving average the next month remain in cash.
  • Repeat.

The backtested data this strategy and plan are based on:

A Plan Is Not a Strategy

A Plan Is Not a Strategy

A Plan Is Not a Strategy

 

A Plan Is Not a Strategy
Backtest Data Courtesy of ETFReplay.com

A strategy is a complete process with an edge. A plan is how you execute that process through defined action steps.

If you’re interested in learning more about trading strategies and trading plans you can check out my best selling book moving averages 101 here or my other trading books on Amazon here. I have also created trading eCourses on my NewTraderUniversity.com website here. My educational resources can save you both time and money in your trading journey. 

A Plan Is Not a Strategy
Image created by Holly Burns