4 Differences Between Defensive Trading vs Aggressive Trading

What is the difference between Defensive Trading vs Aggressive Trading?

Even though Defensive Trading is a system and not just a mindset, it is worth making a comparison of the Defensive Trading vs Aggressive Trading styles to see how they differ.

As we know, Defensive Trading works as a Risk Management approach to trading any asset in the Financial Markets, be it Forex, Stocks or Cryptocurrencies.

It is a system that considers in specific detail the essential information such as Risk Management, Fundamental Analysis and Technical Analysis. On the other hand, aggressive trading is motivated by the desire to win at all costs.

Of course, as Ray Dalio has famously stated “In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.”

Ultimately, as long as you perform the calculations and follow the steps outlined in the Defensive Trading Trade Plan, no matter how aggressive you are, you will always be in control of your risk.

Defensive Trading vs Aggressive Trading Difference 1:

Appetite For Risk

The first thing to consider when making an assessment of Defensive Trading vs Aggressive Trading is actually the most important fact to consider. This point is is Risk and Risk Appetite.

In an aggressive trading approach, you will often see traders adding to a position as a trade goes in their favour, meaning that they are increasing their exposure by opening more and more position size as their profits climb.

Now, while this is definitely a more aggressive approach, it is also completely safe to do this in a Defensive Trading set up as well, providing that you have not reached the limits of your risk assessment in terms of Risk Return Ratio and Capital at Risk (trade size).

However, having said that, as a defensive trader, it would be unlikely that you would get surprised by the market move in your favour as you would have done a thorough analytical assessment of the trade before opening your position in the first place.

In this case then, it is far more likely that as a Defensive Trader, you would be looking to close out the positions that you have open as the prices your target, making sure that you have the profits that you have earned safe in the bank before any potential unpredictable volatility or unforeseen market moves affect the trade.

Defensive Trading vs Aggressive Trading Difference 2:

Style of Trade Set Up

The second thing to consider when comparing Defensive Trading vs Aggressive Trading is the approach to trade set up. An aggressive trader is prone to be less selective with their trade set up criteria. This means that even if they do start off with a trade plan, they often alter things on the fly just so they can be in the trade.

They will start to act off gut instinct (if there is such a thing) and open trades manually even though the price has not hit the level their analysis told them it should, just to be in the trade. It is a very slippery slope and more often than not ends in tears.

A defensive trader will never do this. It is literally a defensive trading sin to change tactics throughout a trading period, particularly due to what you think the trade is going to do. There are never any exceptions to this rule. A defensive trader will keep the setup the same on every single trade, until they have gained enough profits to increase their trade size on each trade. End of conversation.


Ray Dalio

View related post, Ray Dalio on Defensive and Aggressive Trading.

Defensive Trading vs Aggressive Trading Difference 3:

Specific Price Targets

The third thing to think about when comparing Defensive Trading vs Aggressive Trading is the targets that the trader aims for (or not).

An aggressive trader will say, I think the market is trending upwards, so let me just buy and see how far I can ride this. While this will work on occasion, often this means that they are left to do their analytical set up work on the fly, which means that they are working in a pressurised situation and not thinking objectively.

They are trying to see what they want to see and not what is really there. So, the usual outcome is that a trader is left holding a trade that they have doubled down on only to have it not recover to their favour and as a result they have to take twice the loss that they would have if they had simply had realistic targets in the first place and stuck to their risk amounts.

Defensive traders always have a predetermined idea as to what the levels the market will hit for any given trade. This means set profit target that once hit, that trade is closed, and it is on to the next. In order to master this approach to trading you must overcome one if the greatest pitfalls of any trader, which is greed pure and simple.

As defensive traders, we recommend that you don’t try to juice every trade for the maximum amount of profit, that is a gambling mentality and is unsustainable. A real trading approach is to do your thinking and decision making ahead of time and stick to those decision no matter what.

Defensive Trading vs Aggressive Trading Difference 4:

Chasing the Market vs Waiting For The Market

The fourth point to think about when comparing Defensive Trading vs Aggressive Trading is the traders very trade style.

Aggressive traders will chase the market while defensive traders will wait it to look how they want it to look.

Chasing the trend what aggressive traders do in order to not miss the trade. It goes without saying that this is because in most cases, they don’t really have a view on what the market should be doing.

Chasing the market is an almost impossible trading approach to sustain, especially if you are working with the everyday tools. You may mange to get lucky on occasion but that is what it is, luck, not planning and it is a very dangerous approach to running trades and is a great way to blow up your account in a short period of time.

A defensive trader however will focus more on buying dips in an up trend or selling off highs in a downtrend and waiting for a trend to establish if in a consolidation phase. The fact is that we all know that no matter the asset the movement of the price can only really be in one of three stages, uptrend, downtrend or consolidation phase. If we are aware of this, we do not need to waste our time, and risk our capital, in order to chase a wild goose all over the place only to be left holding a loss at the end of the day.

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Which is Better? Defensive Trading vs Aggressive Trading?

The final word on Defensive Trading vs Aggressive Trading. It actually seems silly to even need to ask this question after reading the above information, so let’s assume you didn’t! The best approach in the opinion of defensivetrading.com in the matter of Defensive Trading vs Aggressive Trading is definitely to trade defensively.

Aggressive trading is really only a suitable domain for traders who have at least one of the following three criteria on their side: extensive trading experience, huge swaths of capital or the latest institutional banking software so that they have a computer making the decisions for them.

If you aren’t one of these people, then we would prefer to recommend that you opt for the Defensive Trading strategy. Or, if you are new to trading and would like to follow a seasoned Defensive Trader, there are many available on social trading platforms. You can watch their every move in order to learn from how a successful trader sets up, enters and closes their trades.

Why Not Be an Aggressive Defensive Trader?

In reality, if you have real conviction in your trading analysis and, perhaps as often happens, you are backed by an almost undeniable set of fundamental circumstances you can be very aggressive within the framework of being a Defensive Trader. How may you ask? By adjusting your Risk Return Ratio accordingly.

Risk Return Ratio is used in our Defensive Trading strategy to predetermine how much you are willing to risk for how much you are wiling to gain. In usual circumstances we see a 1:3 to 1:5 RRR. This is the calculation that you will do before you are anywhere near opening a trade anyway, so, if you feel very confident about a specific trade for whatever reason, you may simply increase the RRR (assuming your leverage and account size stay the same).

The important thing to consider with Risk Return Ratio is how many pips are you willing to lose in order to gain? A 1:2 ratio would mean that a trader is willing to risk 50 pips, for example, to gain 100. A 1:5 RRR would mean that for every 50 pips risked the upside is expected to be at 250.  Bearing in mind that GBP/USD moves on average 127 pips a day during the London session, these figures are quite achievable but remember, it is up to what the asset can achieve, not up to what you want it to achieve.

View more on Risk Management Calculations here.

As always, if you have any questions, we would love to hear from you in the comments box below. Happy trading!

Defensive Trading

Defensive Trading

Defensive Trading has been established by traders and investors with experience in Forex, Cryptoassets, Stocks and Options. They are the epitome of Defensive Traders and prefers quality trades over a quantity.

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