How expectations contribute to stress

Do you find yourself swearing after the first trade of the day losing?  Do you find yourself pressing to take trades later in the day if you have not hit a P&L target?  These problems arise from setting expectations.  While many aspects of life unfold in a linear manner where you can schedule your progress, trading is not one of them.  You have probably heard a hard nosed football coach talk about the importance of managing expectations.  Let’s break down how to do that.  

Your expectations need to be realistic.  You can’t expect to have all or most of your trades be winners.  If you come to the market with that expectation and the first trade of the day is a loser it can shatter your expectation and disrupt your whole mental equilibrium.  Instead go into the week saying I will win some trades, and I will lose some trades.  The key to profitability lies in risk management. Then when the losing trade comes you will be prepared for it because you expected some of those.  Watch a PGA event.  The pros miss plenty of fairways.  What distinguishes them from ametuer golfers is the ability to recover.  So as an ameteur you can’t expect to hit every fairway because the pros don’t do that. They can hook a ball around a tree.  You can’t.  So just punch out and accept a one stroke loss instead of three.    

Creating realistic expectations will help keep emotions in check because you are expecting the P&L ebbs and flows throughout the day and therefore a loss will not send you spiraling because you were prepared.