In today’s episode, our discussion is going to be focused on expectations that new traders have about trading, and more specifically, how unrealistic expectations can be extremely toxic for your journey.
If you’re serious about becoming a trader, it’s wise to understand the nature of the beast now rather than learning it the hard way later.
Unrealistic expectations are one of the major catalysts that lead to emotional trading and ultimately a lot of frustration with trading - in fact, the majority of mistakes you will make in your trading career will be a result of expectations that are misaligned with the reality of the markets.
Since you are here with us today, our goal is to set the record straight and provide you with a dose of the realities of trading so that you can better manage your expectations in order to give yourself the best chance of finding sustained success!
So what are expectations and why can unrealistic expectations be dangerous?
- An expectation is a strong belief that something will happen or be the case in the future
- Expectations also bring about emotional highs and lows; meaning that you feel good when your expectations are realized, but you will feel disappointed when your expectations don’t come to fruition
- When emotions creep into your trading, you become vulnerable to making emotional decisions, which is what can really harm your account
- Unrealistic expectations are the catalysts that lead to most of the mistakes you will make as a trader
- These expectations are often the result of buying into online marketing about trading and how it possible to master this craft and attain riches seemingly overnight with a $100 trading account.
- This marketing leads people to have a mistaken perception of what successful trading really requires and starts you off on the wrong path for the journey you are about to embark on
- If you expect to be perfect in your trading or even to be consistently profitable within a short period of time, then you are most likely going to be let down
- The interesting thing to note here is that when your expectations are unrealistic, you will struggle with trading because at a subconscious level, your monkey brain will realize that reaching those expectations is likely to not happen and your mind will go into “fight or flight mode” at which point, your decisions will be made on autopilot without your control.
- This is the real danger of unrealistic expectations! The fact that you will sabotage your own plans and rules when things don’t go the way you expect them to
There are generally two types of “expectations” as it relates to trading :
- Expectations you have about trading
- Expectations you have when actually trading
Here are some examples of each type:
Common unrealistic expectations about trading
- Expecting to flip a $1k account into a million dollars within a year
- Expecting to make money from the first week of trading
- Expecting to be able to make money without any training and practice
- Expecting an easy ride without any work (trading is easy money)
- Expecting to make more profits by spending more time in the markets
Common unrealistic expectations when you are actually trading
- Expecting to never lose a single trade
- Expecting each trade to be a home run
- Expecting to catch the tops and bottoms with every trade
- Expecting to never take any heat on trades
Do You Have Unrealistic Expectations About Trading?
In this next section of the show, we are going to ask you some questions that we want you to be brutally honest with yourself in order to determine whether your existing expectations are realistic or not.
If the answer to any of these questions is yes, then your current expectations about trading are likely unrealistic and it’s time for a reality check:
- Are you taking too many trades or re-entering the market after taking a loss out of anger and frustration?
- Do you force random trades because you expect that more trades mean more profits?
- Do you tend to hold on to losing trades despite the market moving against you?
- Do you try to take on too much risk for your account size?
- Are you constantly hopping from one strategy to the next when you run into a loss and/or streak of losses?
- Do you constantly shift from demo trading to live trading and back to demo when things don’t go the way you expect them to?
Setting the Record Straight: The Reality of Trading (the fishing hook)
- Reaching your trading goals will take much longer and require more effort than initially planned
- You will constantly be challenged and must remain persistent in the face of these challenges in order to overcome them
- There are 4 general stages in the journey to profitability and the most important is the first one because most traders never make it out of this stage when their expectations are not managed accordingly
- In the first stage of your journey, you will be taking losses as you start to get skin in the game; You are still learning and refining your execution so you will make mistakes and the goal here is not to make money but to learn how to survive in the markets by establishing structure; getting comfortable with your strategy and risk management & develop good habits and discipline; do not rush this stage!
- In the second stage, as you start to develop confidence in your strategy, you refine your executions, make fewer mistakes and overall feel more confident in the markets, you get to the point where you are no longer losing money and in fact starting to make some money.
- In the third stage of the journey, you are now at the point where you have recovered the drawdown and have reached the break-even point in your trading - meaning you are now covering costs and commissions without bleeding the account out
- The fourth stage of the journey is where the trader finally starts to make profits and this is where the account growth can occur exponentially, however, most don’t ever make it this far due to unrealistic expectations
Managing Expectations as a Trader
- The most productive mindset for a new trader is to focus on the process of trading, rather than the profits that come with them
- If you do that successfully, you will have plenty of profits, but there are no shortcuts
- Our job is to trade with the odds and accept the probabilities that the odds may not play out on any particular occasion
- Redefine what a good day means! Have a goal going into each trading day and plan to achieve that goal. It should not be related to making money (for example, If I make money today it's a good day), instead, it should be process-focused based on what you can control (A good day is a day that I followed my trading plan)
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