Expectation Versus Reality

Trading presents us with a unique paradox in that we have to be confident enough to attempt to undertake it but not so confident that we blow ourselves up. Unfortunately, most new traders fall into the category of how hard could it be. The majority of new traders have what I would call a here hold my beer and watch this moment.

Such behaviour is quite common in males after all only males will be sitting watching a highly skilled event at the Olympics such as the gymnastics and then boldly state that given six weeks they could be performing on the rings. Putting aside the obvious difficultly most of them have in getting their fat arses off the couch, hanging from a set of rings some 2.75 metres off the ground is completely out of the question.

We have a constant battle between expectation and reality. New traders believe that trading is akin to winning tattslotto. You do it for little bit and them fly to France on your recently acquired private jet. Old hands (grown ups) realise that this is a pipe dream because trading involves long hours of grind, a fair degree of frustration and a wonderful ability to point out every weakness you have.

As an example I got an email a while ago from someone wanting a trading system that had very specific requirements. These requirements were as follows.

• a minimum 20% per month return
• based upon five minute charts
• required no daily monitoring

The issue that was most intriguing was that this individual could not accept that this was totally unrealistic. So I did a few dodgy numbers based upon the trading float he had and presented these. Based upon his float and 20% per month return at the end of five years he would have $3,944,326,004.72. After 10 years he would have $222,252,966,164,622.62 in the bank.  The fact that he didn’t even want to monitor the system didn’t even warrant mentioning

He could not accept that such an outcome was profoundly unlikely. He considered it normal that he should have sufficient funds to buy every listed company in the world.

I will cede the point that this is an unusual case but how often have you looked an instrument and thought to yourself if this goes to x price then I will be able to do or buy whatever. We are once again caught in the battle between expectation and reality. The reality is that most trades are a bust. The majority are either losers or breakeven trades with the smattering of winners and every so often a spectacular winner. The problem is adjusting expectations so that your psyche survives long enough to for you to be around when the big winner appears.  The majority of traders quit simply because expectations and reality are out of alignment. For that majority trading is tattslotto, for the grown ups it is a job.