• Jan

Realistic expectations in trading



Imagine stepping in sector that is vast and filled with huge amount of subjective topics (geopolitics, personal finance, over-analysis, simplification....), correlated sciences (math, biology, psychology, economics...), and hypothesis that are often hard to test (which technicals matter, which funadamentals matter, which indicator really has edge over another...).

All of that taken without real guidance of educational system for traders (long established educational system shaped trough centuries) that is guiding you step by step in order to shape your thinking, knowledge and know how in order to tackle the markets. Imagine what you would get.

The result thus is:


-unrealistic expectations of how long does it really take to find specific edge in market by trial and error (figuring it out by yourself)


-unrealistic expectations of what can be achieved in terms of consistent profits, with dedicating only limited amount of time to learning and practicing trading each day

(for example an individual with full time job)


-underestimating the impact of greed on majority of beginner individuals (especially younger guys)


-how to really figure out if one has passion for market, or is it all just about the money?


-how hard it is to push down the ego and accept the errors as your own and no-one elses, especially for those unfamiliar with businesses, who might have not faced such issues before




As a beginner trader the rule is, you simply do not know where exactly to look, you do not know what you dont know. Or with other words, the points aligned above cannot be answered by any beginner trader, because it takes a lot of experience, trial and error before the picture start to crystallize. Most of the answers simply come by learning from the mistakes, and stacking the practical lessons on top of one another.


Unlearning




Because there is no consolidated educational system when it comes to trading (specific trading university that gives you practical knowledge to execute as trader), the room for mistakes is huge. This is why most traders will start their journey by seeking other traders who are more knowledgeable, but the problem is that this can be extremely deceptive. Because a person with 2 years experience is likely to have more knowledge than person with 1 year experience, but is that enough to justify one to be a mentor to the less experianced person? Absolutely not, if the knowledge is not practical enough to be able to execute on it in market with edge, it is not well rounded yet. And that is where a big problem is within trading industry. So many books, videos, and just generous people willing to share their knowledge, but in many cases there is no real edge behind that knowledge, it is just too basic, or just a fluff. This is often the reason, why the traders learning journey is by default extended in time quite a lot, because trader will eventually have to un-learn a lot of stuff that he or she learnt initially and re-build on better fundations.


Bellow are outlined some practical ways on how to approach trading from better angle, especially for those less experienced or new to the trading field.



Realistic expectations




Often it can be heard in interviews of major successful individuals in sport, business or science talking about how realistic expectations are the biggest factor contributing to success of many individuals and how important it is to have one.

Statements like that have little helpful value to beginners, simply for the fact that realistic expectations are build, they are not born with nor they are earned with giving it a bit of a try. One cannot learn realistic expectations by reading a single book, or listening to single advice. Realistic expectations are built with hard work , errors, adaptation and a bit of humility. Thus how do you get realistic expectations? You just need to do it. Whatever the field you are approaching, just do it. Realistic view will only be shaped over time, over many mistakes, sadly there is no way to jump in front of that.


Thus just saying "have realistic expectations" is not an advice, because there are too many steps to achieve it in trading.



Some practical examples of realistic expectations in trading / investing could be:


-how far can price move on specific asset or specific setup / pattern

-what should be realistic win rate on traded strategy / pattern

-how many times does indicator "work" or "fail"

-how impactful are fundamentals of company on short term price movement

-what is the average time for successful traders to "make it"

-how many trades per month do you need for consistent equity curve performance?

To answer such questions, it requires a lot of homework, tests, data collection, trading, mistakes, recording mistakes, seeking knowledge from other people, re-checking your trading approach, there is just so much to list that goes into answering such questions and having realistic expectations in trading overall.



Realistic expectations are formation of proper homework on trading setups (actually collecting data, testing data, shaping strategy around data), of properly approaching the damaging human emotions (greed, fear,..), experience of trading performance as a trader rather than projecting performance straight from theory or paper, etc....



Passion



Typical progress for majority of traders is, at the beginning stages many of participants are lured by limitless potential of profits they can make in the market and the flexibility / freedom that trading could give them. Around that initial concept there comes also unrealistic expectations which usually tilts the performance of traders enough towards negative side so that many of those will eventually sooner or later start to think about giving up. By majority at the month 6 , big portion of traders will at least have one proper consideration of giving up, some sooner some later. What i mean by this is , that no beginner is driven by passion, beginner traders are all driven by other external variables. Passion is something that only has chance to develop over time, after many failures for most traders.


But the point is because trading as profession is very difficult and many traders will have thoughts of giving up at certain point in time, and eventually majority will give up at least once. The traders that keep coming back are the ones where something else but just the monetary reward is their driver. And eventually certain portion of those traders will eventually over year, two or three figure out that that thing could be identified as passion. What is passion? Obsession in many different sort of niches and angles could be an answer.


If passion is one of key components to succeed as trader, how do you know you have it as beginner / intermediate trader? You dont. One simply does not know until you do and this takes time and dedication. One simply discovers that step by step over time.




Accepting the responsibility



Lets face the fact, majority of participants in markets especially on trading side are men. Both female and male population has certain good generic attributes for trading and certain bad attributes. There is one bad one that men have in much higher number that is considered in business as one of worst attributes you can have, and there is huge portion of male population that has it, some to low and some to high extent which is accepting the responsibility and admitting of mistakes.

Men are pretty bad at this by default, especially the bigger the ego the bigger this issue can be. Some are better at it some are worse, but almost no men is born being good at this from the start, you can only be welded trough molten lava of mistakes and errors, and slowly adapting to this process like a dinosaur trying to adapt of living in 21st century. It is fight against the biological structure and programming of gender to be able to trade optimally or to admit your loses publicly.


A typical excuse process for many traders goes like this when trader looses on trade:


-it was my broker who knows where my stop loss is placed and hunts me,

-it is market maker who knows where we place stops and they hunt us

-it is stupid irrational market participants driving price of asset in totally wrong way

-it is algos who trade against us retailers manipulating and making price action unreadable

-it is indicator which was working 3 months ago but now no longer is working because market has changed

-it is setup that has worked, but now market has changed

-it is central bank which manipulates the currency and pushing it down against me


If an alien came and land on Earth and saw the complaint line above (imagine additional 1000s of other excuses that i have not listed) it would have thought those monkeys have no chance of beating them, because if half of race does not admit to their mistakes there is no way of quick adaptation, because the adaptation comes from acceptance of mistakes, finding the solution and fixing the problem. Without this process its all but idle state or actually backward "progress".


Accepting the mistakes and claiming the responsibility is huge priority factor for any trader, without it the progress will be stalled. Stop with excuses. Claim the shit you pull on your trades as your own and no-one elses. It is your job to find the solutions.


In fact let me be as blunt as possible. Majority of reasons why trader might get consistently stopped out on trade or have negative performance is (after stripping away all of the excuses basically comes down to only two factors):


-lack of experience

-lack of knowledge


That is it. By far those two variables will be the major contributor to the excuses that trader is making, basically trader is missing the puzzle. So next time before throwing excuse, claim the responsibility and admit that you are missing a puzzle. The sooner you do that, the sooner the hunt for the puzzle can begin. It does not mean it will be easy or that you will know which route to take, but it is a first basic step to take. WIthout taking this step, you have accepted the idle phase, which is un-acceptable.






In the core it is rather simple, men are not made to accept the responsibility of their screw-ups especially not in public eye, because evolutionary that makes one look weak, and what makes you look weak decreases your chances of reproduction / continuation in self perception or perception of woman. Its an old evolutionary attribute that is still present, but in modern world of business this attribute can be your downfall, the sooner you learn how to regulate it the better. First key step is to know how to put the ego into cage and lock it down. Lock it tight, and unlock it only after you finish trading.


The conglomerate of accepting the mistakes and under-performance as your own, pushing the greed down, working until you find out you have passion, testing and adjusting the trading approach, those are going to be the core principles you need as trader to succeed.

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