The Bane of Unrealistic Expectations

What expectations do you have around your trading? Take a moment and think about the question. Take a pen, write down the answer. Ask yourself, are in aligned with the reality of trading.

The answer is not of academic interest. Indeed, it may make the difference between attaining and failing to attain your trading dreams and goals.

Let me tell you about Simon. He is in his mid-40s to early-50s and very successful in the business world. He took up trading about ten-years ago. Yet, despite his best efforts, he never made the mark in the trading world that he had made in the commercial universe.


Simon equates losses with failure, especially consecutive losses. Not the amount lost, but the fact that a trade was not in the black side of the ledger. His reaction to a loss was to double-down (think Martingale). The result was a series of decimations of his account.

My advice to Simon was to give up trading. He refused. He had succeeded in everything else in life; he did not see any reason why trading would be different. He persisted without changing his mindset about taking losses. A mutual friend told me the other day that Simon is no longer trading.

That’s the power of unrealistic expectations. They prevent us from accommodating reality and without accommodation, we are doomed to failure.

The belief structure we need to adopt to succeed?

As I see it:

  • On a trade-by-trade basis, the market is uncertain and random.
  • As a result, there is an inverse relationship between your average dollar win/loss and the time you hold a trade. So, the longer the timeframe, the larger your average dollar win needs to exceed your average dollar loss. Why? To compensate for your lower win rate. The shorter the timeframe, the higher your win rate has to be to compensate for lower average dollar win.
  • There will be times when you (and your method) will be so in sync with market conditions, that you can do no wrong. Recognize those times, press the opportunity, enjoy it while it lasts, and maintain your awareness that it can end at any time.
  • There will be times when you (and your method) will be out of sync. In these times, all you do will result in a loss. You need to find strategies to minimize the devastation this period will do to your account.
  • Sandwiched between the two, will be those times when your results will reflect the edge your method delivers over the large sample size.
  • Long-term success requires we continually add to our knowledge base and we continually convert the new knowledge into a skill. Market conditions change and so must you. Success comes with expending effort, time and money.
  • If you are a mechanical trader, no one system will cover all market conditions. You need to know the assumptions underlying your system so that you know:
  1. which system applies to today’s market conditions; and
  2. when the assumptions no longer apply.
  • Finally, recognize that you can break all the rules and make a ton of money in a trade or in a series of trades – but, not over the long-term. Inevitably, your mistakes catch up with you. This is why so many traders experience a humongous profitable experience only to blow-up.

So, my question to you: are your expectations aligned with the reality of trading?


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