Unfortunately for many people who take up the endeavour of trading, they end up losing money. This is despite the existence of many reputable share trading education companies, an abundance of trading books available and the presence of solid trading rules that have stood the test of time. These rules are not secret to anyone either – almost any book will refer to some of them. Yet despite all this, many people still find it difficult to achieve long term profitable trading.
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.