Setting the unrealistic expectation is one the major reasons why traders remains on the losing side. Many new traders come to the markets thinks that i’ll make profits everyday and expects a steady growth on the trading account. However, when the market moves in their favor, they often lose objectivity and begin making emotionally driven decisions. Although it’s not the market which damages the trading account but the expectation of a trader does. However setting the daily profit is a sign of discipline but chasing it may cause the significance hurt to the trading account.
Setting realistic expectations about the market helps traders remain disciplined and survive over the long term.
What Are Trading Expectations?
Trading expectations are considered as a belief that what should happen in the market next. Like expecting my loss to be recovered as soon as possible, every trade ends in profits, assuming market to move as expected etc. This was the some expectations that every trader brings to the market. But the market moves totally opposite of what you expect. When the market doesn’t meet the expectation, traders starts excessive trading, revenge trading and all.
Factors Of Trading Expectations
Calculative Expectations: Many new traders set the x amount of daily profit. Now they start calculating everything on basis of the daily profit target they have set. Meanwhile there is nothing wrong in this because they are unaware about the market movements. After spending some time in the markets they set the realistic targets.
Realistic Returns: Many traders come to the markets with expected return of 100% in just one trade. Meanwhile the pro traders align their returns according to market behaviour. Setting the unrealistic returns expectations from the market may lead you to engage with the forced trade which involves excessive risk.
Risk Aversion: Managing expectation in the trading covers accepting loss as part of the trading or cost of the business. Every trader in the market faces losses even the pro trader. Traders control the expectations by suing the strict stop loss rules, position sizing limitation, limited leverage.
Why Unrealistic Expectations Create Emotional Pressure
Unrealistic expectation often forces traders to run behind expected results. In order to fulfil the expectations their focus shift from process driven trader to the outcome based trader. While aiming for quick returns trader often try to chase every market movement, trade with the excessive risk, avoid being in the discipline etc.
How Unrealistic Expectations Drives Emotional Pressure
Excessive Trading: When a trader run behind the daily or monthly profit target, they tend to forget the trading rules. Meanwhile a losing trade makes them scare and develop the urgency to make money or recover the loss immediately. This lead to abandon the rules engage with the decision driven by the emotions.
Excessive Confidence: A back to back winning trade develops overconfidence in the new comer traders. It creates the illusion of that i can make more and fast money from it. This leads to ignore the loss aversion rules set and increase in position sizing or using the over leverage.
Overanalyzing: The illusion of over analyzing the market will prevent from the losses. This includes marking or finding the invalid setup considering as the valid setup. It often leads to miss the high probability setup which makes money most of time.
How Expectations Lead to Poor Trading Decisions
Holding the unrealistic expectations leads to the weak trading decision making shifting from objective based to emotions driven. When traders expect consecutive wins and easy profits, these expectations often fuel emotional decision-making and weaken discipline. However this decision making make trading more worse.
Practical Ways to Manage Trading Expectations
Maintaining the realistic expectation requires to move the focus from result based trading to process based execution. It involves deattach the outcome of a single trade from the self worth and consider trading as skill based venture. Meanwhile this also includes rather than focusing on the daily profit target, aim for the fearless execution.
Process Based Goals: Instead of holding the high expected returns targets, focus on controlling the what you have in your hand. Reward yourself on executing the trade followed by the clear set of rules. Maintain emotional balance and patience regardless of whether a trade results in a profit or a loss.
Embrace the Possibility of Being Wrong: Believing that every trade will end in profits, will make the path hard to follow the trading rules, if markets moves differently. Create a mental space which accepts the trade if it fails. This shift reduces emotional attachment to outcomes and lowers psychological pressure.
Apply Strict Risk & Position Sizing: By considering this rules while executing the trade preserve the trading account. This rules covers deciding the maximum loss of the day, maximum loss per trade and position sizing. By executing this rules will allow you face the uncertainty of the markets