Over the many years I have been trading, teaching, and coaching traders I have observed that many, at least initially, have what I consider to be an unrealistic expectation of how successful trading flows. They seem to expect each trade to realize great gains and are disappointed if the gain is not great or if a loss is suffered. At times that disappointment results in the trader withdrawing from the activity because he doesn't think it can work for him or because he didn't make money fast enough. One of the problems may be that he has yet to understand the flow of trading.
What I have found is that a whole lot of trades are of the "kiss your sister" variety where gains are not particularly exciting and there are quite a few trades that result in losses. Occasionally, however, a specific trade takes off and does exceptionally well. Provided a trader cuts losses appropriately on the losing trades, the less exciting gainers can be the meat and potatoes while the occasional big gainer can make the difference between mediocrity and excellence. When a trader understands that there will be losses and there will be more trades that just make a little than there are trades that make huge gains, he can adjust his thinking. The fact is that we can never know ahead of time which trade will be the superstar and which will be the small gainer or the loser. We can only know that if we are really to become traders we will experience some of each. If we are really lucky, the big gainer will come first and often, but it may come later and less often. We just can't know ahead of time.
As far as I am concerned, trading is a business and I am in it for the long haul. That means I ride the flow, working to keep losses small, capturing the gains in a fashion that avoids cutting profits as much as possible and accepting that only some of the trades will achieve great results. Those, I believe, are more realistic expectations and enable me to achieve what I consider to be acceptable results.
Impatience and unrealistic expectations are rampant in many retail traders. If they don't get a fantastic return on the first swing, they allow doubt to affect their trading actions and may immediately switch methods or stop their learning efforts or stop trading. The fact is that first trade is only that; a step along a much longer path. Experience on that path teaches more and more about flow as it is gained.
One of the reasons I always suggest paper trading is so that the trader can observe that flow, gaining understanding that there will be big gains, little gains, and losses (hopefully all of the losses will be small). I am fully aware and agree that paper trading is not the same as real money trading, but it does help the trader to see the flow of trading and helps him learn the intricacies of the strategy and adjustments. It may help overcome what I call "home run syndrome" where the trader is always swinging for the fences only to suffer the inevitable disappointment that accompanies unrealistic expectations.
by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved
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