Why is strategy not a plan?
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.
Can you have a plan without a 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.
What is an example of a strategy?
- 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.
The backtested data this strategy and plan are based on:
A strategy is a complete process with an edge. A plan is how you execute that process through defined action steps.
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