It might have been at a football game or a basketball tournament where you first heard this concept (and most often since): a good defense is often the best offense. And since investments employ much of the same game theory as the competitive sports contests we love to play and watch, it makes a lot of sense that defense can often be your best offense when it comes to trading stocks and options as well.
Here are four reasons that defense can become your best offense in trading.
1. It’s less popular
Social media sites like Facebook and Twitter have fostered a new, hyper-fast craving to compete for popularity online. This most certainly bleeds into investments: people enjoy talking about making a huge return on a stock that’s popular and rising, as opposed to telling everyone they made money on the market crashing.
They probably avoid the latter because most people lost money and might blame you as the reason their investments disappeared. Anything that’s less popular holds opportunity.
2. It’s hard to make up losses
If you have significant gains that get wiped out by an even greater loss, your path back to earning those profits again tends to be a much longer one. If you can lock in your profits near the peak of their earnings, and select defensive investments before the markets crash, you’ll have an exponentially higher return by avoiding that losses that result from being too aggressive.
3. You’ll feel better
The stressful parts of investing can be mitigated by employing some defensive strategies to reduce the risk of investing money. Knowing that a loss is possible will always be a concern, but if you can set up an investment to limit the range of money you can lose (like a put-call hedge), then you’ll tend to be a lot less nervous about the investments you’ve made, and be able to relax and enjoy the ride from there!
4. Because it’s starting to become more common to talk about
There are a lot more resources out there now, that tell you how to make defensive investment plays during peacetime on popular stocks and options such as Facebook and others.
Now that people are starting to understand that money can be made (and profits protected) by defensive trading strategies, they’re flocking to resources online (and creating them) to help other investors understand those methods, for better or worse!