Conservative vs. Aggressive Trading Styles

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What do the terms Conservative and Aggressive mean in terms of Forex trading? It depends on how you look at it. Theoretically, it could be seen as the difference between the long-term and the short-term trader. In essence, the defining characteristic common to both is the risk factor. Aggressive traders are more inclined to take higher risks and conservative traders are more risk-averse.

Conservative traders

Given their aversion to risk, conservative traders tend toward the low-moderate end of the risk spectrum when they trade. They use a combination of fundamental and technical analysis to make a well-informed decision about how they will trade. Consequently, they tend to trade over longer periods because doing that much analysis is time-consuming. The increase in investments tends to be more consistent because it’s based on long-term fundamental analysis, which tends to be more reliable. The negative aspect of long-term trades is that large initial capital is required to take account of short-term volatility on open positions. You don’t want to get stopped out because your margin isn’t great enough to account for a short-term ‘wobble’, but your predictions show a significant upturn in the long run. This last point can be counteracted by using low leverage.

Aggressive traders

These traders have acknowledged and accepted the risks inherent in their trading style. They tend to rely on technical chart analysis with a bit of news analysis to support their predictions. Aggressive traders see their profit accrue quickly, especially scalpers and day traders. On the negative side, large capital and high leverage are required to profit from small market movements over a short time frame. There is also a greater risk in these short-term trades.

Swing Traders

These guys sit in the middle and reap the benefits of having the lowest capital requirements, their trades tend to occur over a period of days or weeks. These traders have the most difficult job of identifying and executing these trades as there are fewer opportunities that match their analysis requirements. Having a low initial capital requirement is a definite benefit and leverage can also be used to boost profit margins.

What kind of trading appeals most to you? Are you attracted to the instant gratification of Day Trading and Scalping? Do you have the patience and solid research to tread the conservative path?  Do you like the idea of sitting in the middle and working the fringes of both sides?

They all require the acceptance of risk, don’t misunderstand me, but the difference between conservative and aggressive trading is the amount of risk you are willing to accept.