The Importance of Managing Trading Expectations
When you start trading, you will have a certain set of expectations, negative or positive, referring to the future outcomes of your investment decisions. You may even rely on your hunch for placing buy and sell orders at times, while you will also most certainly score disappointments along the way. Trading always carries a dose of risk — sometimes this risk is lower and sometimes the risk level is high — so you should always take note that your decisions might make you lose your investment. We all have some sort of expectations, regardless of what we are about. Expectations can be defined as emotional investment into a version of the future you prefer the most. Trading also asks for emotional involvement, and not as a necessary trading tool to help you spin return on investment (ROI), but as a consequent response to your financial actions that carry a dose of risk.
In case emotions are in the first plan of trading and making investment decisions, you may allow your feelings to blur the importance of factual data and the reality of situation, which could increase the risk of losing your initial investment. This is why traders need to learn how to manage their trading expectations.
How Is Managing Expectations Related to Trading?
Our body is designed to block and annulate any pain, emotional or physical, with the goal of protecting us and keeping us going. When traders are faced with crooked, or wrong, trading expectations, their body may automatically block any information that could jeopardise the idea of being right about these expectations. Excuses, rationalising irrational expectations, ignoring the fact that there is conflicting information and belittling sources other than the trader's own expectations are some of the ways your mind is working on avoiding pain. Regardless of automatic responses made to protect you from pain, disappointment is an inevitable part of having wrong trading expectations, while the initial disappointment usually comes in the form of losses as a consequence of making wrong investment decisions.
Having expectations is a natural thing, and usually goes hand in hand with predicting the future outcomes of various ventures you are undertaking; however, unrealistic expectations in trading may hurt your future as a trader. Driven by a desire to make a lot of profit and become a multimillionaire based on trading and investing, some traders may allow the desire to overrule their reason, which is when a worst-case scenario may become a dreadful reality. Such a scenario may bring disappointment, and when repeated, traders may be facing frustration in addition to disappointment. More importantly, repeated and prolonged feelings of disappointment and frustration may lead to eventually quitting the market and developing resentment towards trading in general.
Your wrong expectations may eventually make you feel like you don’t belong in the market, while this wouldn’t be the case if technical data and key indicators were taken into consideration instead of relying on false expectations and the way you feel about a certain investment. Sticking to unrealistic expectations and the idea of making a fast profit may make a trader ignore obvious signals indicating that the trade is not on the favourable side of the market, which will as a consequence result in losing a trade.
When making a position, ensure that you are well aware of all technical signs and try to ignore false expectations if there are any.
Defining Trading Expectations
Trading expectations can be defined as anticipation to see a certain prediction on placing a position in the market turning out as predicted by a trader. When there are trading expectations, there are emotions of hope related to trades, which is how trades are poorly managed and in accordance with personal expectations, and not based on key indicators and market data. If you allow your trading positions to be based on emotions, you are more likely to lose your investment.
Why Is the Discipline of Emotions Important for Trading?
Emotional discipline is not only important for trading, it is an essential factor for becoming a successful trader. Successful traders cannot afford to be lost to emotions and false expectations, as this may mean a lost trade as a result. You know that your emotions are managing your trading decisions when you notice that you are rushing back into the market whenever your hunch turns out to be correct, and feeling extremely bad about yourself when the case turns out to be the opposite. The importance of emotional discipline is great when it comes to trading as it allows you to keep your head cool and form your decisions on trading based on legitimate proof that there is a chance that you will make a profit.
Furthermore, emotional discipline should allow you not to give up trading and prevent emotional distress when your trade turns out to be a financial failure. What you should note at all times is that trading always comes with a certain level of risk, which shouldn’t affect you emotionally. The solution to successfully disciplining your emotions is not to completely shut down your feelings and build immunity to emotional involvement; rather, you are looking for a golden middle, which means that you should most certainly have expectations, but not allow these expectations to be the main factor behind your decision making.
How to Manage Trading Expectations
Expectations are what keeps us motivated, setting up our very own vision of the future outcome that we have invested ourselves in. As already mentioned, successful managing of trading expectations doesn’t mean that traders should restrain themselves from having any expectations whatsoever. It rather means to take care not to create any expectations that could be considered unrealistic. To avoid being upset, you need to thoroughly consider all your trades and trading decisions, analysing your very own motives for buying or selling certain positions. Avoidance of unrealistic expectations will bring you closer to clean facts and useful market data that could provide you with an honest and more reliable insight into the market than would be the case with your own expectations.
Build your expectations in trading based on facts — this is the only way to avoid creating unrealistic expectations and anticipating that your predicted outcome will confirm what you are expecting from your trades.
Don’t look for signals that doesn’t exist in order to prove your expectations right, and most certainly don’t stick to your decision once you are able to conclude that these expectations are unrealistic. When you become aware that some of your positions are set to bring losses, instead of stubbornly holding on to a decision you’ve brought based on your expectations, cut your losses and start planning another trade and your next position. Make sure to learn from your mistakes, as this may be the only way you can continue trading and not give up out of frustration and disappointment. Remember to rely on price action, technical analysis, and other key metrics that should help you cut your losses and learn how to manage your trading expectations.