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By in Forex Trading Blog | 27 Comments

Online tradingThe reason why it can seem so hard to make money as a trader is best summed up by the following paradoxical statement by Ray Dalio in the book Hedge Fund Market Wizards

(Ray is the founder of Bridgewater, the world’s largest hedge fund):

 

“In trading, you have to be both defensive and aggressive at the same time. If you are not aggressive you will not make money, and if you are not defensive you will not keep money.”

It is trying to balance being aggressive enough to make money while being defensive enough to keep the money you’ve made that is the most basic problem a trader faces in the market. Today’s lesson will give you some tips on how to keep the two in balance so that you can not only improve your chances of making money in the market, but more importantly, not give that money back to the market.

How to be an aggressive trader but not too aggressive

As a trader, you face constant temptations to trade too much and to risk more than you’re comfortable with, all because there’s an idea in the back of your mind that you could ‘get rich quick. It’s very hard to ignore such an enticing idea due to all the warm and fuzzy feelings it brings you and the images of being ‘rich’ that it drums up in your mind.

In other words, it’s EXTREMELY easy to be too aggressive in the market. However, as you may well know by now, being too aggressive is a quick route to losing money and possibly blowing out your trading account. But, you do need to be aggressive enough if you want to make money trading, so how do you find that middle ground between not being too aggressive and not being aggressive enough?

There’s no one answer that will easily solve this problem for you, rather, it’s a combination of realizations and abilities that you need to acquire and implement. Here’s a quick-list of these realizations and abilities to help you find that aggressiveness ‘sweet spot’:

  • Realize that you need to pick and choose your trade entries carefully. If you are not picky with your trade entries, you’ll end up over-trading, i.e., being too aggressive, and you’ll lose money as a result. You need to first obviously know exactly what you’re looking for in the market (what your trading strategy is) and then commit to only trading when that strategy is presenting you with a signal.
  • Realize that you cannot hesitate once you identify your trading strategy is giving you a signal to trade. Hesitation and fear have no place in a successful trader’s mind. You need to know what you’re looking for, as I said above, and then act on the signal without hesitation once it arises.
  • Realize that it’s better to trade less frequently but with a bigger lot size when you do trade, rather than entering many smaller trades per month. Going in relatively ‘big’ on two or three trades per month that exactly meet all your trading plan’s criteria, is much more intelligent than constantly being in the market on a bunch of random trades that are basically just gambles.
  • What you need to do is be aggressive, but infrequently. If you’re too aggressive, either by trading too much (over-trading) or by risking too much, or the worst possible combination, risking too much and over-trading, you will lose money. The key lies in being aggressive only when you’re trading strategy is clearly telling you to trade. In other words, save your ‘bullets’ for the easy / lucrative targets, then you’ll get the most bang for your buck.
  • When I trade, I go in ‘big’ relative to my account size, but because I only trade maybe 2 to 4 times a month, I am probably still risking less relative to my account size than a smaller trader who enters 20 or 40 trades per month, each with a small dollar risk per trade.
  • All those little trades add up very quickly, and they can’t all be high-probability, good signals. So, the key is to wait patiently for the most obvious signals and then back yourself when they form, i.e., don’t risk TOO much to where you can’t sleep, but don’t go in too light either.

How to be a defensive trader but not too defensive

On the flip side of the coin, you have to be defensive in trading, but not too defensive. As I discussed in my article, How to Get Your Trading Mojo back, traders very often give back their trading profits, usually all of them and more. This can be very frustrating and is a big reason why most people fail to make money over the long-run in the market.

Again, finding the middle ground between being too defensive and not defensive enough is no easy task. But, the following tips should make it easier for you…

  • Withdrawal some of your profits at the end of the month, if you had any. Doing this will not only make sure you can’t give them back to the market, but it will serve to reinforce the fact that it’s your (real) money and it’s not just numbers on your computer screen. This way, you will start to view profits as something more real, and this should make you a bit more defensive of them.
  • Realize that you’re going to be the most emotional and thus most likely to give back profits right after a trade. Don’t jump right back into the market for no reason after your previous trade closes out. Monitor yourself after a trade, whether it’s a winner or loser. Make sure you don’t jump back into the market on a ‘whim’ and give back the profits you just made. Profits are not easy to make in the market, so protect them.
  • Realize that you don’t need to trade every day, or even every week. Often, the best and most lucrative position is to be out of the market. Strong trends are the easiest time to make money (like we are seeing now in many pairs, e.g. EURUSD, USDJPY and other majors), but they don’t happen very often. Thus, if there’s not a strong trend underway, odds are you should be flat the market unless your trading strategy has fired off a very obvious signal, like we discussed above.

Conclusion

In trading, you have to be aggressive enough to make the most out of a valid trade setup when it arises, but you also need to be defensive enough to not give back the profits you made on winning trades. These two things can often feel as if they are at odds with one another. But by learning an effective trading method like the one I teach in my trading course, combined with proper planning and a healthy dose of patience, discipline and common sense, you will find the elusive ‘middle-ground’ between aggressiveness and defensiveness that will result in long-term trading success.

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 15,000+ students since 2008.
Checkout Nial’s Professional Forex Course here.

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27 Comments

  1. David says:

    Thanks to you the trading Guru. Nice article

  2. dan says:

    Great advice!!

  3. Ipeleng says:

    As I want to be a beginner. I find your lessons very helpful and grooms my path to trading. I’ll keep on going through your lessons until I’m ready to start trading

  4. xiera trading says:

    Love reading your articles. They always motivate me in some ways…

  5. xiera trading says:

    You are absolutely right. Love reading your articles & they are always motivate me in some ways.

  6. Khesiwe says:

    Thanks Nail useful article.

  7. Samzaks says:

    This is yet another powerful piece, please keep on the good work sir.

  8. Dotty says:

    Great article , thank you, these articles are worth there gold some days. Just what I needed to read,

  9. dmu says:

    Hi Nial,

    this is a fantastic subject every trader should read.
    I’m looking forward for you to release the article on how did you win the trading competition.

    thank you

  10. Janet says:

    Such a valuable post. Many traders are afraid to be aggressive and defensive with their trades.😎

  11. Colin says:

    Great words, ‘only trade when my strategy presents itself’ thank you a timely reminder to be patient

  12. Zephania says:

    Thanks Nail for your continued insights. Actually I’ve been analysing the market using your 3 set ups, and the market is becoming clearer. I’m still low on the experience curve, but I’m learning a great deal.

  13. Terry riley says:

    True words Niall nothing worse than waking up in the morning and you have blownall your good work away getting rash.

  14. KRISTOFA OKENTA says:

    I will do what you tell me, “I will be ‘aggressive’ and I will be ‘defensive’ at the same time”
    This is a very ‘big’ and ‘most important’ lesson for every trader.
    Thank You.

  15. chima says:

    Just at the time i am cutting out overtrading and trying to pick the best and sure signals, this article was sent to me by a good friend, its indeed an eye opener. Now i know how to do it .

  16. Guiton says:

    Hi Nial, (would like to know how you pronounce that )

    All I can say is that either you are a mind reader (of my mind) , or there are many of us out here just like me in exactly the same position/situation/trading experience who feel that you are writing to each of us explicitly.
    It’s actually scary……. , how often your comments and articles address exactly what I need to know and when I need to know it, or read what you have to say, it’s like you just answered a personal question of mine.
    I signed up to your course a year or so ago so I still am still in the process of learning, but with your constant input and personal letters to me (that’s how it feels , anyway) , I am slowly but surely progressing toward my ultimate goal of a ‘Professional Trader’ !!!
    I thank you Nial, your selfless and sharing attitude speak of a great soul.
    Regards,
    Guiton
    (also quite tricky to pronounce properly)

  17. Roselee Etoh says:

    What shall I say… thanks so much Nial for this superb post.

  18. Austine says:

    Your articles have been very educative and has really been a boost to my trading career.

  19. Emmanuel says:

    thank you sir, you are the fx saviour of our time.God will increase your wisdom. Amen

  20. David says:

    Hi Nial, I really appreciate your articles they are highly concrete and exact. But can u write an article on how different candlestick real body length, shadow body length, colors and patterns affect trading bias(market psychology). Thanks

  21. John Compton says:

    Nial,

    Of all the trading advice out there, this article really made me think about how I do things. I see the wisdom in just sitting on the sidelines when things are just kind of sketchy, but going in bigger when the conditions are right. Thank you. I’m going to try to implement some changes in my trading plan.

  22. Lukasz says:

    Great article as always :) Thanks to you, I began to adjust to swing trading with day trading it is hard because this week I made just 3 transactions but from 2 to tp. Please do not stop writing articles on a blog are very helpful!

  23. Lakeside says:

    Another bombshell. Weldon bro.

  24. Noris says:

    What if taking 20-25trades/week is profitable long term?Even if the winning rate is 50%(making more than 3R on the winning ones).Can`t you take those and in the same time wait for the high probability ones too?

    1. Nial Fuller says:

      Noris, in the real world this is not going to be achievable for the average retail trader, especially a novice. The higher the turnover of trades = the more likely the trader is to lose the spread.

  25. Phillip says:

    Thanks Nial , for reinforcing these trading lessons, hopefully it will finally get though, especially overtrading and giving your profits back.

  26. peter miller says:

    Another wonderful trading lesson. We are ever grateful for your insight and methodology not to mention your great support in helping us be successful in trading and meeting our goals and dreams in life
    A big thank you.

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