Emotions are a by-product of what we expect from life in general. If good things are expected, we are usually full of optimism and energy. If bad things are expected, anxiety usually takes over. If we feel success will not come our way, we may feel discouraged. On the extreme end, if perfection is expected, we will be constantly disappointed with real life.
Why do I start this article with these statements?
The relationship between expectations and emotions are important for traders, especially those less experienced than veterans. This article is intended more for those relatively new to trading, although experienced traders can also fall prey to these assumptions at times.
One of the priorities for traders is to develop the type of positive experience that will improve your learning efforts. Those learning to trade will be less effective if they are discouraged or feel anxiety. It’s important to the learning process to be absorbed in the process itself without battling emotions.
What are some trading assumptions that can be toxic, and how can they be avoided?
- Working Harder while trading means trading more often. The assumption that if you trade more, the learning curve will be less and you will build your trading skills faster. This can result in overtrading, and likely giving up some profits over time. You may also be placing more capital at risk when overtrading, by entering positions ‘because it looks good’, or ‘because someone else had a big win’ with a particular strategy and/or time frame. Being consistent and adhering to your trade plan will produce the results you desire.
- Success means making a full-time income from trading. This is another assumption that can generate discouragement and frustration. Very few, if any, traders just beginning their education are able to generate enough income on its own. A football player spends years developing their skills with a college team and/or local organization before joining with a professional team. The same goes for those in the medical field – surgeons, for example, spend four years as a medical student, then several years in residency, plus even more time learning their field of specialty. To expect a full-time income from trading within the first few years is unrealistic. The better, and more realistic way to approach the learning process, is to strive to keep losses minimal, and adhere to your trading plan to improve your skills. If your expectations are to make a living from trading more quickly than those people I’ve used in the example above, you are setting yourself up for frustration and failure.
- A good day means a winning day. This is an assumption that pretty much guarantees your emotions will rise and fall with your daily profit and/loss. It’s human nature to expect a good day; but by equating a good day with a winning day you are headed for disappointment when a loss is incurred. We know that losses are an inherent part of trading. Said another way, a good day is one where good trading practices are followed, along with keen risk management to keep losses minimal and profits over time greater than those losses.
One way to overcome these toxic assumptions is to write your expectations in your trading journal. This may also include your expectations for your own personal development as a trader, with realistic goals and objectives. Be sure your goals are attainable, depending on your overall expectations as a trader.
If you are looking for a trading group, or perhaps a mentoring program to help with your learning process, consider joining www.capitaldiscussions.com/join. There are many classes and educational programs available for both novice and experienced traders.