In Trading the only “strategy” is STRATEGY

If you’ve never been on I highly recommend it. Instead of mindless trolling of FB taking idiotic quizzes about which celebrity you resemble most, spend a few minutes on quora where the level of discussion is considerably more elevated and answers to all of life’s questions are crowdsourced with a surprising degree of intelligence and wisdom.

The other day someone posted the following question -- what is the difference between strategy and tactics? The person who answered it used World War II as an illustration. The Germans he noted, we far better soldiers that Russians. In almost every engagement the German army was able to inflict far more damage per soldier than the Russians. Put simply 10 German soldiers could easily defeat 50 Russian ones in almost any confrontation because of their superior tactics. My grandfather, who was with the Russian corps of Army engineers was painfully aware of German might and I heard countless horror stories about the Russian front when I was a child.

Yet the Germans lost the war. Not just lost it, but were annihilated by 1945.Why? Because Russia had millions more people and vast swaths of land and was fully willing to sacrifice both resources in order to buy time. Because Russia moved all of its war materiel production behind the Ural mountains outside of the range of German bombers allowing it to rebuild production. But of course the single biggest reason was because Russia joined the Allies and thus aligned itself with an economic block that was responsible for 25% of global output and therefore was able to stand and watch as all those massive resources were targeted against its enemy.

Germany had much better tactics, but Russia had a better strategy. (Mind you I am not arguing that all of this was well pre-thought by Stalin. Russia essentially stumbled into its strategy through mishap and circumstance, while Germany made a massive strategic mistake of declaring war on America) But the point that is important here is that strategy always beats tactics. You can have poor tactics but proper strategy and still win. But if you have excellent tactics but the wrong strategy you will always lose.

I thought that was an interesting point for us traders to consider. In day trading the only strategy that matters is to trade very small size and do massive volume of trades so that the law of large numbers is on your side. It really doesn’t matter if you use pure price action as I do, trendlines as some of the traders in my room do or even some combination of indicators. Those are all tactics. They are important to be be sure. And the better you get at tactics the more efficient and profitable you will become.

But in the end tactics will do nothing for your bottom line if you don’t use the right strategy. That is why the single biggest sin in day trading is to use large size. No matter how good it feels ( I am sure Germans were feeling just peachy in 1941) it will always blow you up in the end.

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So in trading as in life the only ”strategy” that matters is strategy. Do that right and you can make many tactical mistakes and still win.

Boris Schlossberg

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