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There’s this old saying, often applied to strategic games as well as warfare, that “the best defense is a good offense.” Another variation of this is that “the only good defense is an active defense.” Let’s transform it a bit: the best of “defensive strategies” has an effectively “aggressive (offensive) component.”

What we’re trying to say here is not that the two–defense and offense–are linked (which they are), but that one can easily shift to the other when the situation calls for it.

As it relates to trading, a “defensive” posture can be tweaked to take on an “aggressive” function. In other words, “risk management” is as much an aggressive concept as it is a defensive strategy. You manage risk to calibrate profit potential, not just to avoid losses. Here’s an example that explores this notion.

 

Risk Management Strategy Squeezes Profit From Losing Trades

Imagine two traders–Trader Joe and Trade Giuseppe.

Similarities

Both traders have a starting balance of $10...


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