By Toni Turner
After you enter a trade, do you immediately establish a set of expectations of how its price will move?”
As humans, we operate with a set of expectations for nearly every action we take. From crossing the street, to leading a project team, to playing a game of tennis, to attending a concert or a party . . . if we prepare well and own a reasonable skill set connected to the objective, then we expect to get to the other side of the street, give our tennis opponent a challenging game, or gain enjoyment and strengthen relationships at the concert or party. From the simplest action to more complicated ones, we humans operate on expectations.
That is one big reason that so many traders fail. They focus on each trade and expect it to win. If the expectations turn into hope, bigger problems crop up. As long as the trade is positive, and moves in the right direction, all is well. But if price makes a U-turn and heads lower, that’s when traders fall into the all-too familiar trap of fear.
And most of us know where fear takes us… most times, it causes us to forsake our original trading plan and lead to decisions that can result in losses.
While it is reasonable for you to have an expectation of profits if you follow a specific plan, and if your stocks are well-chosen, that expectation is only reasonable if you average it over a large section of trades… 30 trades is a reasonable number.
When we lock down on a trade with the expectations that it will cover our last loss, or our last five losses, or that it will be a big winner, we may be gravely disappointed.
The best way to enter a trade is with a neutral mindset and calm confidence born of your trading plan and your commitment to discipline. That is the way to a more successful trading path.
Until next time, keep green on your screen,