The Best Offense Is A Good Defense

Watching the women's Euros last night reminded me how many similarities there are between trading and sport. Italy should have had the game won but they took an overly defensive stance for much of the 2nd half. They allowed England to attack over and over, hoping that they would be able to keep them at bay.

However, in a wonderful (I'm biased) moment in the last minute of the game, England dramatically tied things up. At that point all of the momentum was with England and after relentlessly attacking in extra time, England prevailed and moved on to the final.

We often think about trading from a defensive angle. How to avoid losses or erring on the side of safety. But taking an overly defensive stance can lead to just as bad results as an overly aggressive one. Not allowing yourself to enter into a trade for fear of what you might lose will deny you some great wins. Or getting out of a trade too early because you wanted to protect a profit, so you didn't allow yourself a wide enough stop. Then after you were out the market continued, and your profits would have as well.

There's a nice balance that you should be aiming for, grabbing opportunities when they do present themselves, knowing when to let things ride and knowing when to exit. Easier said than done I know, and there's a lot of psychology that goes into it - we'll be doing a separate post on the psychology of great traders shortly. But too much defensive trading will leave you on the sidelines and someone else lifting the trophy...or getting that bonus.