Trade With Reasonable Expectations

One of the important reasons of failure of many traders is the lack of awareness of reality. Reality check is applicable for every aspect of your trading activity. Be it a trade or management of your account, you should tread with realistic expectation and analyze the situations by keeping the reality in mind. Expect Realistically Realistic expectations are essential for successful trading. Many beginners naively believe that they can start with a few thousand dollars and turn millionaire quickly. Lack of realistic expectations will entice you into over trading in order to achieve your expectations. Over trading is a sure path to blowing up your accounts. What does it mean by realistic expectations? Say you take a conservative approach of trading and risk only 2% on every trade. With 5 trades a month, you are risking 10% of your account every month. If you achieve 70% of the winning percentage, with a conservative expectation of risk reward ratio of 1, you can expect to grow your account 7% each month. Now this is just the guideline to give the realistic expectations. Expect and Take Realistic Profits You should determine the both ends- maximum profit and maximum loss from a trade before entering it. Both the profit targets and stop loss should be determined before you enter. This is where a realistic assessment of the situation comes into play. Numerous trading strategies are traded worldwide. Choose any of these strategies but the profit targets should be determined based on logical assessment. You can not decide the profit arbitrarily and expect to make hundreds of pips by risking few pips. Various exit strategies should be looked into. Don’t Forget Stops Every trader should take the stop loss seriously. Trading without stops is like driving a car without breaks. A trading strategy plays an important role in determining the stop loss. Calling your losing trade as positional trade and keeping it without stops is a bad trading habit which should be avoided. On the other hand keeping a small stop loss without any logic is also bad trading practice. Please keep in mind that there are trading strategies with a tight stop loss. Mistakes Are Part of Journey You as a trader should assimilate the fact that you are not going to win all the time. But it is a human nature not to accept the mistake too easily. Once you accept the fact that you are not going to win every time, you are most likely to accept your mistake. It will keep you away from a bad practice of keeping a losing trade because you can not accept a mistake on your part. It is your job as a trader to assess the situations logically and not emotionally. Reality check is nothing but an ability to see what is going on objectively. When you are emotionally detached from the decision making process, you see the things the way they are and make better trading decisions. Practice will make you a smart trader. Accept the reality and become a successful trader.