Code-Minimum Bracing
Building codes generally prescribe that exterior stud walls be braced, at each end, with let-in 1x4s, metal strap devices, diagonal wood sheathing, or plywood or OSB sheathing. Figure 1 shows two common ways of complying.
Let-in bracing. Building codes require you to nail let-in bracing with two 8d nails (or 13/4-inch staples) at every stud and each plate. Yet despite all these nails, the design lateral load capacity is limited by the capacity of the two nails in each plate, where the brace force is concentrated. The nails in the plates will always fail first, and once these fail, the brace is no longer very effective.
Plywood at Corners. Some builders use vertical plywood sheets at wall corners, often in conjunction with non-structural insulative sheathing on the rest of the wall. When the plywood is nailed according to code (6 inches on center on supported panel edges and 12 inches on center on intermediate supports), the total design shear load capacity is more than five times greater than for let-in 1x4 bracings.
Structural Sheathing
Figure 2 shows the two most common ways to sheathe walls with plywood or OSB (Oriented Strand Board)*. Often, the carpenters run the plywood horizontally. For residential construction, builders often use 7/16-inch plywood nailed with 6d common nails. If the plywood is nailed according to minimum code requirements, a 20-foot wall with horizontally applied plywood has a total design shear capacity of 2,460 pounds. That means the wall can resist over a ton of force applied laterally at the top plate.
When the same plywood is installed vertically, the shear capacity goes up to 3,280 pounds. The strength of the vertically sheathed wall is greater because all the plywood panel edges are fastened to solid framing, and there are no plywood joints parallel to the shear force. The weak spot in the horizontally sheathed wall is the continuous plywood joint at 4-foot height where the panel edges are least supported. (When plywood shear walls fail under load, the failure begins at the panel edges, with the plywood pulling away from the framing and pulling out the nails, or tearing through the nail heads.) If you add horizontal 2-by blocking and nail the plywood at the horizontal plywood joints, the wall with horizontal panels would have the same shear strength as the wall with panels installed vertically.
Figure 1. Code-Minimum Bracing
When nailed with 6d common nails spaced at 6 inch intervals on-center around the edges, and 12 inches in the interior of the plywood panel, a pair of 7/16-inch plywood panel braces has more than five times the shear strength of let-in 1x4s (assumes S-P-F framing lumber).
Figure 2. Plywood Sheathing
These lateral capacities assume 7/16 plywood panel sheathing, S-P-F framing, and 6d nails spaced at 6 inch intervals on-center around the edges, and 12 inches in the interior of the plywood panel.
*OSB looks like a bunch of wood chips glued together (that's what it is). OSB performs as well as plywood in most applications — if you keep it dry.