Expectations In Trading: A Reality Check


Feb 28, 2024By The Kaizen Trader

In the world of trading, expectations often clash with reality. I recently encountered a student grappling with lofty short-term goals. This encounter prompted a deeper reflection on the pervasive issue of unrealistic expectations amongst newer traders, fueled in part by the misleading returns flaunted on social media.

Unrealistic Expectations: During a coaching session, a trader expressed a desire for a monthly return of 4%. However, I swiftly debunked this notion, emphasizing the importance of aligning expectations with where the trader currently is within their journey (less than 1 year) and knowledge level. Trading, contrary to popular belief, is not a get-rich-quick scheme but a complex discipline requiring continuous education and skill refinement.

Social Media Illusions: The increase of influencers flaunting extravagant profits and lifestyles contributes to the misconception that trading is effortless (this is how they sell their products to you). However, behind the curated posts lies a stark reality obscured from view. Comparing yourself to these influencers sets a dangerous precedent, fostering unrealistic expectations and setting novice traders up for disappointment.

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Challenging the Myth: While some may argue that a average 4% monthly return is attainable (I don't fully disagree), the truth is far less glamorous. Achieving consistent returns akin to the trading elites demands mastery, akin to the prowess of sporting legends like Tiger Woods or Michael Jordan. The harsh reality is that such exceptional returns are an anomaly rather than the norm, reserved for a select few with extraordinary skill and experience. 

If you know of anyone achieving a consistent 4% monthly return, backed by a verified track record, please do share as I would eagerly welcome the opportunity to learn from them and enhance my trading skills.

Navigating Market Realities: Trading is inherently unpredictable, lacking the linear progression often assumed by novice traders. Attempts to break down returns into daily or weekly targets overlook the unavoidable volatility of markets. Instead, traders must embrace the sporadic nature of returns, with periods of significant gains offset by periods of stagnation or drawdowns.

Common Trading Errors: Overinflated expectations often pave the path to common trading pitfalls. It's a recurring pattern: traders, driven by unrealistic goals, resort to forcing trades, straying off their edge, and sizing positions too aggressively. In the pursuit of quick success, risk management takes a back seat, leaving accounts vulnerable to significant losses.

Many individuals view trading as an escape from the confines of the 9-5 grind, setting their sights on rapid achievement without fully grasping the complexities and demands of the market.

If you find yourself experiencing any of these pitfalls, it's essential to pause and reflect: are you succumbing to overinflated expectations?

Realistic Benchmarks: To provide context, I conducted a study of top traders with verified track records, managing substantial capital (See previous blog post for more context). The findings underscored the modesty of returns typically observed in the real world of trading. With average annual returns hovering around 11-17% and monthly returns averaging below 1%, these figures offer a sobering contrast to inflated expectations. 

In the pursuit of trading success, managing expectations is paramount. By dispelling myths perpetuated by social media and embracing the realities of the market, traders can chart a more realistic path to profitability. Let us heed this reality check, recognising that sustainable success in trading demands patience, discipline, and a pragmatic approach to expectations.