Expectations are our own personal version of the future. Using your knowledge of how an environment functions, you project into the future what you believe to be true.
Expectations also bring emotional highs and lows. Because you naturally expect your beliefs to be right, you’ll feel great when the future matches your expectations and feel bad if it doesn’t.
So, what does this have to do with trading?
Our minds are gifted with pain-avoidance mechanisms that help us cope with physical and emotional suffering. Think about it. Don’t we all remove our hands instantly from a hot surface? I’m sure even Cyclopip has learned not to put his hand over the fire.
Pain-avoidance in trading is different only in the sense that it deals with emotional pain. To avoid the pain of having wrong expectations, you subconsciously block any information that would invalidate your idea. You usually rationalize, make excuses, belittle the significance of conflicting information, and sometimes even straight up lie to yourselves just to feel good.
Dangers of mismanaged expectations
There’s nothing wrong with having expectations, but problems could arise when you set unrealistic expectations. These comprise could-be-profitable yet highly improbable scenarios because you wanna be a billionaire so freakin’ bad. Because these expectations rarely turn into reality, you usually feel disappointed and frustrated when things don’t turn out so well.
What’s worse is when this situation happens over and over again. Feelings of disappointment and frustration can compound and evolve into anger and resentment towards yourself or the even the market. Since you feel discouraged, you might eventually give up and stop trading altogether!
The classic case of having unfulfilled expectations in trading is sticking to a losing trade. The price action might trend in the opposite direction of your position, but you ignore all these obvious signals and focus on insignificant details that are still supporting your idea. The clear pattern is lost on you because you find it too painful to accept.
Protecting yourself from unrealistic expectations
In trading and probably also in life, managing what we expect is of utmost importance.
Notice carefully my choice of words.
I did not say remove expectations; I specifically said managing expectations. If you remove expectations, you run the risk of not feeling that something is at stake, which could draw your focus away from the trade to other things.
On the other hand, if you are able to manage your expectations, you can easily alter your view of the market depending on what price action is telling you. There’s nothing wrong with expecting the market to move to a certain level, what is deadly is when you are so stubborn to maintain your view even when price action is telling you otherwise.
Learn to let go of the things you cannot control (the market), and manage those things that you can (your expectations). By doing so, you are able to take rational trading decisions, which would hopefully lead to more wins than losses.