If you follow sports, you may have heard the saying, “you do not lose a game 0-0”. One could interpret this phrase as meaning that defensive trading is equally as important as offensive trading if you want to win consistently. However, it is essential to note that a final score of 0-0 will not yield you a win either. Therefore, you must make sure your offensive trading game is solid. So, how do you strike a balance?
Many traders take the plunge into the forex or cryptocurrency market without understanding the effectiveness of their plan. In fact, most of these traders probably believe they have an excellent trading strategy that will tell them when to precisely enter and exit the forex or cryptocurrency market. However, having a good trading strategy is not enough. To trade successfully, you must approach trading like a coach in any competitive sport. Any successful coach would focus on outscoring their rivals, but more importantly, ensuring their competitors do not score on them. Similarly, as a trader, you need to come up with mechanisms to help protect all your hard-earned gains from going back to the forex or cryptocurrency market.
Defensive trading is the fundamental mechanism for helping to protect your capital from the everchanging direction of the forex or cryptocurrency market. An excellent example of a trading defense is the use of a stop loss. Also, utilizing a trailing stop loss is a reliable defense when implemented correctly. Properly managing leverage and incorporating money management into your trading regimen are both critical aspects of defensively trading. Many traders struggle with these concepts and allow their emotions to work against them.
For example, when times are good, and we are winning, many traders will only focus on offensive trading. Traders will even borrow to trade, overtrade, and of course, tell their friends how they are making it big trading forex or digital currencies. On the other hand, such traders will only start playing defensively when they are losing. Opening orders on a trading account with no regards for money management or risk involved will surely result in blowing up the account. Therefore, a trader needs to learn the principle of defensive trading. Defensive trading aims at preventing a losing trade from eating away a trading account balance.
In conclusion, a trader should have a well-crafted trading plan that incorporates an offensive and defensive strategy. This approach will help you win more as a trader and drive your long-term survival in the forex or cryptocurrency market.