By Rob Colville on March 6, 2015 in
One of the single greatest aspects about trading the markets is that here’s no real “right” or “wrong” way to do it. It’s extremely objective and there’s always room for interpretation.
Kind of like a fox in a henhouse, though, there’s never any room for trading expectations; at least not as part of a successful long-term strategy!
Trading is a thinker’s game, however, and as thoughts continually fly around in all of our heads, perhaps it makes sense to have some misplaced trading expectations creep in, too. And that’s not really the problem…this is:
When we let those trading expectations affect our mental state—and especially our decision making—all sorts of negative consequences can happen, from mismanagement and poor execution, all the way to potentially disastrous losing trades. So that’s why we’re tackling this issue here today, and calling on the necessary tools to eliminate trading expectations before they can ever go on to hurt us.
As we said, there’s a lot happening inside the mind of a trader, and not all of it is conducive to getting the results we want! Of course, thoughts about being disciplined and trading according to plan are fine, but it’s those thoughts about trading expectations that are problematic. And this is why:
Before a Trade
You can see it so clearly: A clean entry, a fast and decisive move directly in your favor, and heading straight into profit faster than you can even say “Man, I’m good at this!”
The problem is that trades are never “perfect,” so having trading expectations that call for them to be will always do more harm than good. Every trade is independent of the others as well, so there can be no preconceived notions for how any trade will turn out. Besides, it’s best to focus on executing your strategy and pay attention to factors that are well within your control, and then let the results take care of themselves.
During a Trade
What if a high-quality set-up gives rise to a trade that happens to go against you first? By having pre-set trading expectations going in, wouldn’t you be tempted or even likely to exit at the first sign of trouble—like a run-of-the-mill pullback or brief correction that fails to reach your initial stop—rather than stand by that trade like your strategy would dictate?
Furthermore, what if you go expecting a home-run trade, but the market will only allow you a single? Would you be willing to accept what the market is rightfully giving, or would those misplaced trading expectations cause you to try to “ride it out,” squeeze every last ounce from the trade, or even risk giving back what you’ve already won? This can be yet another way trading expectations can cause you to stray or even outright abandon your trading strategy in search of immediate gratification. Don’t fall victim to it!
In the Bigger Picture
Take a step back and think for a moment about your reasons for trading. It’s not to “Get rich quick,” or to become famous, or for any of the other “pie-in-the-sky” reasons that are out there. Such misplaced trading expectations do exist, though, and they can—and routinely do—wreck entire trading careers before they start.
When it comes down to the most common misconceptions about trading, there’s none bigger than believing that trading is an easy means to achieving great wealth and financial freedom. Expecting those things will happen despite their lack of knowledge, trading education, and experience is why so many traders ultimately fail, and it’s here you see that in every sense of it—from the day-to-day right up to the bigger picture—trading expectations are detrimental to a trader’s success.
So how do you turn off those costly trading expectations? Well, you focus on something else, and for traders, that means being supremely committed to the factors they can control, and then walking away and letting the results happen on their own.
If you really want something to obsess about, why have it be money or the direction of the markets, which we have no say in? Make it plan compliance, and continually improving your methods. When done right, the money will come as a result.
Also, don’t sit there staring at your screens while trades are in progress! Nothing good can come from micromanaging them like that, and besides, if you set your stop using proper risk parameters, there’s nothing more you need to do, anyway.
See related: 3 Key Qualities of “Set and Forget” Trades
Instead, you can move on, look for another qualifying trade set-up, or simply go on with your day and your life, free from the emotion you’ll inevitably feel while watching a trade in action. You’ll be happier for it, and you’ll probably trade better just by eliminating the possibility for any preconceived trading expectations to impact your decision making.
Like a traffic jam from the future, the mind of a trader is a busy place, with all kinds of ideas flying around! There are strategic thoughts, news and information, our own unique trading goals, and even biases we may not even know we have, all buzzing around and often colliding…and that’s just on a normal day!
All those things are rightfully at home inside a trader’s mind, but amidst all that, there’s absolutely no room for trading expectations! They cloud judgment, interfere with decision making, and routinely ruin trading careers before they even get off the ground.
As we’ve seen, trading expectations are a really big deal, and they’re misplaced because the markets don’t owe us anything. Hopefully, armed with these tools, you’ll identify these common, costly thought patterns before they ever creep in and adversely impact your trading.