Differences between plan and strategy are very obvious. Understanding these differences is very important in trading. Trading strategy and trading plans are the basics you must master. Similarly, identifying differences between plan and strategy in trading is also key.
If you are confused about the differences between trading plans and trading strategies, then there is no need to feel overwhelmed. We are going to explain the key differences between both concepts in the easiest terms. Let’s dive deep to find out.
Differences between plan and strategy
Understanding the differences between a trading plan and a trading strategy is the key when learning the basics. The differences between the two are obvious but difficult for beginners to understand. Therefore, we want to make it as easy as possible.
Let’s try to understand what is a trading strategy and what is a trading plan before advancing to our main topic.
What is a trading strategy?
A trading strategy is a very simple concept. In fact, it is among the easiest basic trading concepts. It doesn’t mean that developing a good trading strategy is easy. Here, we are only talking about what is a trading strategy.
A trading strategy is simple as it consists of just two aspects. These are when to enter a trade and when to exit a trade. Again, it isn’t easy to define entry or exit rules. Traders base these rules on fundamental analysis or technical analysis.
What is a trading plan?
A trading plan is a broader concept. Unlike a trading strategy, it covers numerous aspects. For example, your trading plan must cover the market you want to trade in. Similarly, it also covers aspects like trading timeframes, entry rules, rules like when and when not to trade, risk management, money management, etc. So, you see, a trading plan is a broader aspect that covers multiple trading decisions. Let’s talk about these aspects in detail.
1. Markets you want to trade in
There are numerous markets traders can trade in. For example, if you want to start trading, you will have to choose whether you want to trade stocks, Forex, cryptocurrencies, or any other financial instrument. A trading plan enables you to stick to one market and gain expertise instead of flipping.
2. Trading timeframe
Another notable difference among differences between plan and strategy is that the plan covers trading timeframes. A trading strategy doesn’t do that. It means setting your timeframes for trading. For example, whether you need to trade on a daily, weekly, monthly, or any other basis.
3. Entry and exit rules
These are the rules you define when developing a trading strategy. So, these are two common factors between the trading plan and trading strategy.
4. Risk management
Risk management is another key element of a trading plan. Managing risk is more important than making profits in trading. Your trading strategy doesn’t define how you need to manage risks. Instead, it is your trading plan that covers this crucial aspect.
5. Money management
Money management enables traders to manage their funds in the best possible way. It also enables them to see how much risk they should take against their trading balance.
6. Other elements
Your trading plan also covers several other elements. For example, it must cover how you will trade around holidays. It should also cover how to trade when the issuance of major economic reports is imminent. Similarly, you can also define in your trading plan your short-term trading goals and objectives.
The differences between a plan and a strategy are very obvious. A trading strategy is a simple mechanism that defines when to enter and when to exit a trade. Conversely, a trading plan is a broader phenomenon. It covers multiple factors and plays a vital role in your success as a trader. Fully understand these differences between a trading plan and a trading strategy to make trading a little bit easier for yourself.