Forex Traders with Wrong Expectations

There is huge hype about trading. This can lead to some unrealistic trading expectations.

Your expectations determine how emotionally challenging and enjoyable your trading experience is, as trading performance and results are all gauged by our personal expectations. For example, let's take a trading strategy that returns 15% per year with a 75% win rate. This strategy could be viewed as a "holy grail" by a trader expecting to make 10% per year. Whilst a trader expecting 15% per week would review this same strategy very differently, perhaps even viewed as a waste of time!

Expectation #1 - Drawdowns

This is a biggie! Almost all traders understand the concept of a drawdown - a period of loss making. A trader is not going to have a 100% trade win rate - there will be losing trades - and there will be times of consecutive losing trades.

For some reason, despite understanding this concept, many traders don't ACCEPT this concept. Let me explain... As soon as a trader hits a drawdown, the reaction is panic or discouragement. The following statements could flood the mind of the trader...

'The strategy is not profitable anymore'

'I need a more profitable trading strategy'

'I am going to lose too much, so I will reduce my position sizes'

'I need to increase my position sizes to win back these losses'

'I am so angry, I am going to risk all that I have left in my account'

In other words, the trader becomes emotional and let's his emotions determine his trading decisions. This will always result in long-term failure.

Conclusion... Accept that drawdowns will happen and expect drawdowns to happen, because they will happen!

Expectation #2 - Win Rate

I lose a lot of the time. A large amount of my trades are stopped-out for a loss. This does not make me a bad trader, it actually makes me a real trader! Most profitable traders are right only 40%-65% of the time.

A lot of traders understand that there will be losing trades. What they don't understand is that there will be consecutive losing trades. Even a strategy that has a win rate of 65%, could have 10 consecutive losing trades, maybe even more! This does not make the strategy unprofitable or not worth using.

Conclusion... Expect a lower win rate. A win rate of around 50% is ideal. Expect to have consecutive losing trades. Also expect to have consecutive winning trades.

Expectation #3 - Quick Profits

Forex trading is not a 'get rich quick' scheme. It can make you rich, but it will do this slowly.

In order to make large returns, a trader may have to take large risks. High risk trading guarantees greater emotional and psychological challenges. This may lead to quick short-term profits but it will also lead to discouraging long-term losses.

Too many traders expect far too much far too quickly. They review their performance and results on a daily or weekly basis, this can lead to discouragement and disappointment. Profitable traders review their results much more longer-term.

Conclusion... Trading can make you rich, but it will make you rich slowly. To make trading work long-term, you need to risk a minimum. Expect to be patient. Review profits once a quarter or once a year.

Expectation #4 - Trading is Easy Money

The above statement is true, but only from a certain point of view...

I only need to trade a few minutes every hour, I work from home, I have no daily commute and I have uncapped earnings. This is all correct. What people don't see is the amount of time and commitment involved in getting to this point. My trading journey has taken hours of study, practice, losses and frustrations - it has not been an easy journey.

Read the quote below from As a Man Thinketh...

'Seeing a man grow rich, they say, "How lucky he is!" Observing another become intellectual they exclaim, "How highly favoured he is!" And noting the saintly character and wide influence of another, they remark, "How chance aids him at every turn!" They don't see the trials and failures and the struggles which these men have voluntarily encountered in order to gain their experience; have no knowledge of the sacrifices they have made, of the undaunted efforts they have put forth, of the faith they have exercised'

Conclusion... Trading is not easy, nor will it ever be. Anything worth achieving is hard, whether that is success trading, business, marriage or fitness! This is a universal principle of success.

As always, I wish you all the best in your trading!

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