Trading Expectations That Set You Up for Disappointment

One of the biggest misconceptions about trading is that it’s a quick and easy road to riches. Beginner traders who start with high expectations for big rewards are often left discouraged, as the path to success is not as clear-cut and is typically paved with losses. Here are a few more trading expectations that could simply set you up for a huge disappointment.

1. Taking more trades increases the likelihood of winning.

New traders are typically buzzing with excitement, eager to take their first few trades to see if they can master the markets quickly. For some, taking more setups as they materialize might be viewed as a way to accelerate their progress, but this isn’t always the case. In fact, being too eager to hop in trades without conducting thorough analysis could make one prone to overtrading.

In this regard, the mindset “quality over quantity” is more appropriate rather than “practice makes perfect.” While increasing your screen time can help you understand price action better, being picky with the setups that you take and focusing on proper risk management could be the key to improving your win ratio rather than jumping on every possible trade opportunity.

2. There exists a “Holy Grail” strategy that will always be profitable.

Most traders are obsessed with finding the “Holy Grail” system that can outsmart the markets and always manage to stay profitable regardless of the trading environment. The truth, however, is that the market dynamics keep shifting and that flexibility in terms of trading strategies could prove to be a more handy skill.

It has been observed that trends usually take place around the start of the year and towards the end while markets typically range during the summer months. A trend-following system can then be profitable during the first and last quarters of the year while mean-reversion systems might be more appropriate during the middle of the year. Instead of devoting most of your time searching for that elusive strategy, focus on being able to pinpoint changes in market dynamics and adapting your strategies accordingly.

3. Profits are the only measures of progress.

When it comes to trading, the easiest way to track your progress is through your account’s profit or loss. While this makes sense to some extent, your bottom line number fails to take into consideration your psychological and mental development throughout your trading endeavor.

With this kind of expectation, it’s easy to feel bummed out whenever you’re in a losing streak. You might attribute this to failure on your behalf and take it hard on yourself even when the losses were spurred by sudden unforeseen market moves. On the flip side, it doesn’t make sense to attribute big wins to superb trading skills when you might’ve caught these moves out of pure luck.

Keeping a trading journal can be a better measure of progress, especially if you include details on your decision-making and the factors that led to your adjustments. This way you can identify behavioral patterns or highlight the usual adjustments that allow you to improve your profitability.

4. It’s easy to make a living out of trading.

Another big expectation among traders is that it’s easy to turn it into a full-time career, relying solely on profits to make a living. The lack of proper education can lead one to gamble away one’s life savings on the expectation that the gains can be enough to sustain a lavish lifestyle, only to find out that it takes years to build a solid trading career and not everyone is cut out for that.

This lofty expectation often springs from seeing trading experts and legends rake in millions of dollars in profits from their positions, but it’s not often known how long these folks worked hard to get at such a high point in their trading careers. Their losses are not publicized as strongly but the truth is that a good number of the top traders have come from humble beginnings and have experienced career setbacks every now and then.

To get an idea of how long and hard these market wizards have worked to earn their success, it’s helpful to read trading psychology books or interviews with these top performers to see how they’ve managed to stay on top of their game. Even seasoned traders who have hit big home runs can suffer losses and no one is immune to the occasional losing streak so you have to remind yourself to only trade money that you can afford to lose.

5. Higher risk means higher rewards.

Lastly, this gambling mindset could be the most detrimental to trading success as the expectation of reaping higher rewards by simply increasing risk could lead to trade mismanagement. While it’s true that risking a larger portion of your account on a single trade could open the possibility of making a big win compared to a smaller amount of risk, you have to remember that this also exposes you to a possibly larger loss.

Traders who are on a winning streak are prone to becoming overconfident in their skills, tempting them to take larger positions in order to maximize their profits. However, suddenly increasing your risk can have a big impact on your trading psychology and decision-making process since more money is on the line. If this ends up making you feel daunted by price swings, you might freeze when you need to make an important trade decision such as cutting your losses when the market is going against you. Because of that, you are exposing your account and yourself to more disappointment.

At the end of the day, it’s important to manage your trading expectations so that you won’t set your benchmarks so high that they wind up unattainable. It’s good to have goals based on your performance metrics but it’s also equally crucial to focus on the trading process rather than simply looking at the profits, especially when you are just starting out in your trading career.

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