Having high expectations of yourself is a good thing however, unrealistic expectations is not. Many traders when presented with the wonderful opportunities that the market offers can be very easily led to setting unrealistic goals for their trading. This can be devastating.
So what is it that separates the successful from those who fail? If you ask anybody who has studied trading for any period of time, they will answer ‘psychology’. Essentially, your mental ability to manage losses and profits and the good and the bad times in trading, manage risk, to not become too greedy and many others are all encapsulated under the heading of ‘trading psychology’. There have been numerous professional articles and books written on the subject of ‘the psychology of trading’ and therefore this article is not intended to elaborate any further on an already well debated and discussed topic, except for one area.
One thing that many people struggle to come to terms with is their expectations of their trading. Too many people have unrealistic expectations and expect to make triple digit returns consistently, for example.
Having high expectations of yourself is a good thing however, unrealistic expectations is not. Many traders when presented with the wonderful opportunities that the market offers can be very easily led to setting unrealistic goals for their trading. This can be devastating. At various trader’s exhibitions and similar events, it is surprising to hear the number of people who demand trading systems that can produce several hundred percent return and won’t settle for anything less. These people sometimes then have the audacity to scoff at solid methodologies on offer that can reasonably expect to achieve a consistent 25 – 35% per year return.
Unfortunately for these people, their expectations are often too high and unrealistic. There will be times when they will suffer several losing trades in a row and when this occurs, they potentially will not be able to get back on track. With a slight drawdown in their trading capital and with their unrealistic goals in their mind, they will start to bend the rules and assume unacceptable levels of risk in order to regain the losses quickly and achieve their lofty goals. Another problem that some traders face is even when they set themselves a realistic goal of 20% per year for example, they then expect to achieve that return in the first few weeks as opposed to taking a longer term view over the 12 months. 20% per year is only just over 1.5% per month yet some traders will expect to achieve that quickly and may adopt some of the poor habits similar to described earlier.
It is vital to set yourself goals with your trading but it is equally vital to ensure that those goals are measurable, and realistic.
Why Break the Trading Rules?
Money is something that affects people’s emotions and your natural instincts with money will often encourage you to break some of the time tested risk management rules, for example ‘cutting your losses’ and ‘keeping your trades small’. Most traders focus on making money and realising a loss goes against the aim of making money.
Performance Monitoring
It is well accepted that this is a characteristic of the best traders in the world. They have a passion for their trading and will often and periodically review all of the trades that they have conducted including all the profitable and losing trades, and learn from them.
Importance of Stops
One of the things that separates successful traders from the majority of market participants is that they have a detailed plan that guides them when to close trades. For them, this is essential.
