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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&nbsp;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.<figure id="figure-nysr2bqydbilt5pv756"><img id="nysr2bqydbilt5pv756" src="https://cdn.durable.co/blocks/fjAEAAelcKZa8K6w1EDXmZH8HJalWGBa107h6XXmoF7l5TCXJc441e7JVUFPmuTl.png" alt="black smartphone near person" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 1/1; object-position: center center;" data-corners="default" data-aspect="1:1" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/fjAEAAelcKZa8K6w1EDXmZH8HJalWGBa107h6XXmoF7l5TCXJc441e7JVUFPmuTl.png" data-mce-style="aspect-ratio: 1/1; object-position: center center;"></figure> 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.&nbsp;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 (<a data-mce-href="https://www.thekaizentrader.co.uk/blog/trading-returns--what-is-realistic" href="https://www.thekaizentrader.co.uk/blog/trading-returns--what-is-realistic">See previous blog post for more context</a>). 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.&nbsp;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.

Expectations In Trading: A Reality Check

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In the fast-paced world of trading, the concept of overtrading often looms large, casting a shadow of doubt and confusion over aspiring traders. However, a recent tweet (do we still call them that?) on X inspired this blog.<figure id="figure-39ybwwbwf2rlsxff27m"><img id="39ybwwbwf2rlsxff27m" src="https://cdn.durable.co/blocks/2c5W9aITGCJiBqwAEK9zo2bDwMhkaHnU6dGR2GEJil2f9ZsuqdxQF5kjqYL7ozbo.png" alt="USDC was established in 2018 by Circle and Coinbase, and it's pegged at 1:1 with the U.S. Dollar. Unlike USDT, of which Tether is the only issuer, USDC can be issued and redeemed by other member institutions of the CENTRE Network, such as Coinbase." class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: undefined undefined;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/2c5W9aITGCJiBqwAEK9zo2bDwMhkaHnU6dGR2GEJil2f9ZsuqdxQF5kjqYL7ozbo.png" data-mce-style="aspect-ratio: 16/9; object-position: undefined undefined;"></figure>The exchange struck a chord with me, particularly drawing from my background in sports betting. In that realm, the guiding principle is clear: when you possess an edge, the objective is to maximize your bets to capitalise on your advantage. There's no room for hesitation; the focus is on seizing every opportunity to place bets and secure profits. This mentality rejects the notion of stopping trading activity after a certain number of wins or losses. Instead, the emphasis is on relentlessly pursuing opportunities to leverage your edge and optimise returns.Drawing a parallel between trading and the world of gambling may seem unconventional at first glance. However, the underlying principles are remarkably similar. Just as a casino leverages its statistical advantage to generate consistent profits, a successful trader seeks to exploit their edge in the market to maximize returns.Consider the analogy of a weighted coin, where the odds are tilted slightly in your favor. With each flip, there exists a small but tangible advantage that can be capitalised upon. In this scenario, the rational approach is clear: flip the coin as many times as possible to harness the power of your edge.@pedma7 explains that the notion of overtrading often serves as a convenient scapegoat for retail traders grappling with losses. Without a genuine competitive advantage, traders find themselves battling with uncertainty, chasing elusive profits and succumbing to impulsive decision-making.&nbsp;While the absence of a verified edge leaves traders struggling with overtrading, another crucial aspect often overlooked is the emotional toll of consecutive losses resulting from no edge. The inability to handle losses exacerbates the challenge. Traders must confront this emotional aspect head-on, recognising it's significance alongside strategic development. By addressing both the lack of true edge and the emotional hurdles associated with losses, traders can better position themselves for success in the world of trading.In conclusion, the concept of overtrading is not a reflection of excessive activity, but rather a symptom of inadequate preparation, inability to handle losses and finally a lack of true edge.

The Truth About Overtrading

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Probabilities, in essence, encapsulate the likelihood of various outcomes occurring within a given set of circumstances. In the realm of trading, understanding probabilities is paramount, as it provides insight into the potential outcomes of trading decisions.Every trader should be well-versed in a basic set of probabilities relevant to their strategy. Presented below is a list for all traders to grasp when deploying their strategies.Winning and Losing Trades: Understanding the probability of winning and losing trades is fundamental to risk management and overall strategy evaluation. Example: Suppose a trader has a strategy with a historical win rate of 30%. This means that, on average, they win 30 out of every 100 trades. By knowing this probability, the trader can anticipate that they will experience losing trades as well, even with a successful strategy.&nbsp;Using that 30% win rate we can calculate the probabilities of losing streaks over a set number of trades. Below is an image shared by Steve Burns detailing the probabilities of losing streaks by win rate for a 50 trade period. We can see there is a 69% chance of losing 10 trades in a row over 50 trades with a 30% win rate strategy.<figure id="figure-rocyw5uyeolsuqrvi0" class=""><img id="rocyw5uyeolsuqrvi0" src="https://cdn.durable.co/blocks/52ah0BKGjXcksahk54CpVP9uRFi4ihGJIwikg0K29zUSA0wmyQnzcwH1azYD45qI.png" alt="person using MacBook Pro" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 1/1; object-position: center center;" data-corners="default" data-aspect="1:1" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/52ah0BKGjXcksahk54CpVP9uRFi4ihGJIwikg0K29zUSA0wmyQnzcwH1azYD45qI.png" data-mce-style="aspect-ratio: 1/1; object-position: center center;"></figure>Days, Weeks, Months, and Years: Recognising the probabilities of trading outcomes over different timeframes helps traders gauge the consistency and sustainability of their strategies. Example: A trader may analyse their strategy's performance over various timeframes to understand its efficacy. For instance, traders can utilise this analysis to comprehend the likelihood of consecutive losing days, weeks, or months, which is particularly crucial from a trading psychology standpoint, aiding in managing emotions and fostering better decision-making.Drawdown Depth: Understanding the probabilities associated with drawdowns is pivotal for navigating emotional challenges and ensuring resilience in adverse market conditions. Example: Consider a trader meticulously analysing the probabilities of experiencing drawdowns of various magnitudes. They may find, for instance, a 25% chance of encountering a 10% drawdown in a year, or a 50% likelihood of facing a 5% drawdown within the same timeframe. Armed with this information, the trader gains not only a clearer view of potential risks but also a psychological advantage. By grasping the likelihood of such drawdowns, the trader can mentally prepare themselves for inevitable downturns, fostering emotional resilience and maintaining discipline in their trading approach. This insight empowers the trader to stay focused on long-term goals, effectively managing emotions and optimising decision-making processes amidst market volatility.A distinct lack of understanding around probabilities often leads to psychological challenges for traders, which in turn can result in poor decision-making. By grasping these probabilities, traders can better anticipate and manage both the best and worst-case scenarios, thus effectively managing their expectations during both prosperous and adverse market conditions.

Basic Probabilities to Understand

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I am sure you have all heard of the 10,000 rule? This principle&nbsp; suggests that achieving mastery in any field requires approximately 10,000 hours of deliberate practice. Translating this to trading, one might consider the notion of conducting 10,000 trades as a means to proficiency. If we assume an average of 250 trading days per year and take two trades daily, it becomes evident that reaching the 10,000-trade mark could span roughly 20 years. However, this timeline can be significantly accelerated through the strategic acquisition of feedback.Practicing with a purpose stands as a cornerstone in this journey. Relying solely on live trades for feedback overlooks abundant opportunities for improvement. Utilising software platforms to replay historical market data enables traders to take trades at an accelerated pace, potentially exceeding live market participation by tenfold. Trading view, Tradezella, FX Replay are just a few examples.&nbsp; Furthermore, engaging in chart markups fosters deeper insights into price action, technical indicators, and fundamental drivers. This meticulous analysis not only hones chart reading skills but also facilitates the collection of valuable data for further analysis and feedback generation.Incorporating screen recording as a feedback tool is a valuable addition. For traders operating on suitable timeframes, recording their screens during trading sessions opens up a new avenue for self-assessment and improvement. By capturing their trading activities, traders can meticulously review each trade, identifying missed opportunities, suboptimal entries, or premature exits. This detailed scrutiny allows for a granular examination of decision-making processes and market dynamics, enabling traders to pinpoint areas for refinement. Moreover, the ability to replay trades repeatedly enhances the learning process, facilitating deeper insights and fostering a heightened awareness of trade execution nuances.Beyond individual practice, fostering a sense of accountability within a community or with an accountability partner amplifies the feedback loop. Collaboratively sharing insights and experiences not only lightens the individual workload but also provides diverse perspectives and feedback on various aspects of trading. Additionally, seeking guidance from a trusted mentor or coach offers invaluable support in navigating the complexities of trading. Mentors, often possessing years of experience and success, provide personalised feedback, helping traders identify strengths, weaknesses, and areas for growth.The importance of mentorship cannot be overstated. In various domains, from athletics to business, mentorship remains a common thread among successful individuals. Mentors offer guidance, wisdom, and encouragement, steering aspiring traders toward their goals with clarity and purpose. Their seasoned perspective and constructive criticism serve as catalysts for improvement, accelerating the journey towards mastery.In conclusion, maximizing feedback serves as the linchpin for accelerating improvement in trading. By diversifying feedback sources, traders can exponentially hasten their growth trajectory. Use the actionable approaches below as stepping stones towards consistent profitability in the dynamic world of trading.- Chart replay functions- Chart mark ups- Screen recording live trades- Join a community- Find a mentor&nbsp; &nbsp; &nbsp; &nbsp;

5 Ways To Speed Up Your Journey

Candle stick graph chart of crude oil price stock exchange trading. - Concept of growing oil prices and Global Financial Markets.

In the world of trading, drawdowns are not a matter of if, but when. They're an inevitable aspect of navigating the unpredictable terrain of market fluctuations, a reality every trader must confront. This post aims to normalise drawdowns, shedding light on their inevitability and countering the prevailing notion that only double-digit drawdowns are abnormal. Let's delve into the psychology of drawdowns and compare these experiences to the broader market landscape, notably the S&amp;P500. Remember, it's not about avoiding drawdowns but learning to navigate them on the path to long-term success.Drawdowns test not just your trading acumen but also your emotional resilience. It's during these periods of adversity that the mental fortitude of a trader is truly put to the test. The fear, doubt, and anxiety that accompany drawdowns can often cloud judgment and lead to irrational decision-making. Yet, seasoned traders know that drawdowns are an intrinsic part of the journey towards consistent profitability.Comparing to the S&amp;P500: Even the broader market, represented by the S&amp;P500, experiences drawdowns. Understanding the magnitude and frequency of these drawdowns provides perspective and reassurance to individual traders facing similar challenges, especially as we strive to outperform the benchmark of typical buy-and-hold strategies.Below shows the yearly drawdowns in the S&amp;P500 since 2000. 15 out of the 23 years (65%) have drawdowns into double digits. The average across this period is 15.75%.&nbsp;<figure id="figure-pqu0f4jf1lsni1bua" class=""><img id="pqu0f4jf1lsni1bua" src="https://cdn.durable.co/blocks/6kHnl9jUjEdgJRD6l2f7vS61saltvUKKkujEXt2fUavHzQ88bSKGHBexoZoLSMCX.png" alt="person using MacBook Pro" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/6kHnl9jUjEdgJRD6l2f7vS61saltvUKKkujEXt2fUavHzQ88bSKGHBexoZoLSMCX.png" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure>Hedge funds such as Long-Term Capital Management (LTCM), Tiger Management, Bridgewater Associates, and various quantitative funds have demonstrated that they are not immune to significant drawdowns. During turbulent market periods such as the Russian financial crisis of 1998, the bursting of the technology bubble in the early 2000s, and the global financial crisis of 2008, these funds faced drawdowns ranging from 20% to as high as 44%. These examples underscore that even large and sophisticated hedge funds are susceptible to drawdowns far beyond single-digit percentages. It highlights the importance of risk management and adaptability in navigating the complexities of the financial markets.Social Drawdowns: One common pitfall among beginners is the failure to normalise drawdowns. Social media often portrays a highlight reel of trading successes, leading many to believe that drawdowns are abnormal. However, the reality is that drawdowns are an inherent part of trading and should be expected.In addition to social media, we now have funding challenges many retail traders are trying to exploit, also contribute to the stigma around drawdowns. In these funding challenges, double-digit drawdowns are often deemed unacceptable, further perpetuating the myth that drawdowns should be avoided at all costs. As a result, traders may be inclined to abandon proper trading strategies and instead opt for buying a new challenge when faced with significant drawdowns. However, this approach fails to impart the invaluable lessons that drawdowns offer and undermines the development of crucial resilience in traders.The Road to Recovery: Recovering from a drawdown requires not just patience but also a clear strategy. By looking back at historical data and backtesting results, traders can gain a more realistic understanding of what constitutes a "normal" drawdown for their trading system. The table below illustrates the relationship between drawdown %'s and the subsequent % returns needed to recover.<table border="1" style="border-collapse: collapse; width: 70%; margin-left: auto; margin-right: auto;" data-mce-style="border-collapse: collapse; width: 70%; margin-left: auto; margin-right: auto;"><tbody><tr><th style="width: 50%;" data-mce-style="width: 50%;">% Loss of Capital</th><th style="width: 50%;" data-mce-style="width: 50%;">% Required to Recover</th></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-5%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">5.3%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-10%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">11.1%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-20%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">25%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-30%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">42.9%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-40%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">66.7%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-50%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">100%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-60%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">150%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-70%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">233.3%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-80%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">400%</td></tr><tr><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">-90%</td><td style="width: 50%; text-align: center;" data-mce-style="width: 50%; text-align: center;">900%</td></tr></tbody></table>Conclusion: Drawdowns are an unavoidable aspect of trading, but they needn't be feared. By understanding the psychology behind drawdowns, learning from the experiences of experiencing them first hand, and normalising drawdowns within our trading community and framework, we can navigate these valleys with greater confidence and resilience.

Normalising Drawdowns

Candle stick graph chart of crude oil price stock exchange trading. - Concept of growing oil prices in Global Financial trading Markets.

In the world of trading, amidst the allure of quick gains and easy money touted by some, lies a stark truth: learning to trade is anything but easy. Contrary to the glamorous images of effortless clicks and instant wealth, the reality is a battlefield where the fiercest competitors have the sharpest minds and the quickest computers, making it one of the most cutthroat arenas on the planet.Imagine a sport where amateurs contend with seasoned professionals on a level playing field, with no handicaps in sight. That's trading. It's a merciless world where setbacks are inevitable, and success demands more than mere button-clicking skills—it requires unwavering resilience.One of the greatest challenges in trading is understanding your own personality and aligning it with a suitable trading style is a journey fraught with self-discovery. It demands a level of self-awareness unparalleled in any other endeavour as you navigate the emotional minefield that threatens to derail your performance at every turn. Moreover, finding an edge in the market—a statistically significant advantage that eludes many despite their best efforts.&nbsp;Unlearning conventional thinking is another hurdle traders face. The journey is akin to the pain endured in the early days of cycling or running. It doesn't get easier; you just get faster and stronger. Similarly, in trading, the challenges persist, but with each setback overcome and lesson learned, you grow.Resilience becomes your greatest asset. It's the ability to pick yourself up after every fall, to persist in the face of adversity, and to keep pushing forward despite the hurdles. Trading isn't just about making money; it's a journey of self-mastery, requiring grit, determination, and an unwavering resolve to succeed.So, the next time someone glamorizes the ease of trading, remember the reality: it's a demanding pursuit that separates the resilient from the faint-hearted. Embrace the challenges, learn from the setbacks, and keep pushing forward—because in the end, it's not the ease of the journey that defines us, but our ability to endure and thrive in the face of adversity.