The Mirage of Trading: Are Your Expectations Realistic?

The Mirage of Unrealistic Expectations

Have you ever wondered if your trading expectations are too optimistic? If you are trading a small account and find yourself on a constant roller coaster of profits and losses, you may be falling into the trap of unrealistic expectations.

The Mirage of Outsize Profits

Let’s imagine that you have a trading account of $5,000. With a risk of 2%, that is, $100 per operation, what benefits can you expect? With a risk-benefit ratio of 1:1, you can aim to earn $100 for each winning trade.

Now, let’s put this into perspective. In many countries, the average monthly wage is around $4,000. To reach this income with a $5,000 account, you would need to earn 80% every month. Is this realistic?

The answer is a resounding no. Not only is it unlikely that you will win 80% of your trades, but you are also not taking into account the inevitable losing trades that are part of the trading game.

The Psychology of Trading and Undercapitalization

Undercapitalization, or trading with an account that is too small, has a direct impact on trading psychology. When you can’t afford to risk a meaningful amount of money, you trade in constant fear of losing what you have.

This fear leads you to make impulsive decisions, over-trade, and make mistakes that could have been avoided. In addition, undercapitalization makes you compare your capital with material goods that you could buy, which further undermines your confidence and leads you to make more mistakes.

The trap of social networks

In the age of social media, it’s easy to fall into the trap of comparing our lives to the seemingly perfect lives we see online. Traders are not immune to this tendency, and many find themselves discouraged when they see the luxurious posts of other traders who appear to be making effortless money.

These posts create a false impression that trading is an easy path to riches, leading many traders to trade with unrealistic expectations and take on too much risk.

Solutions to Overcome Unrealistic Expectations

Join a prop trading firm

Partnering with a proprietary trading firm can be an effective way to overcome the challenges of undercapitalization and unrealistic expectations. These firms provide traders with access to larger capital, allowing them to trade with greater confidence and reducing psychological pressure.

In exchange for a share of the profits, these companies offer traders access to fully funded trading accounts, which eliminates the risk of capital for the trader.

With an account of $100,000, for example, earning 10% per month would translate into an income of $9,000, which would comfortably cover living expenses and leave a profit margin.

Set realistic expectations

Setting realistic expectations is crucial for trading success. Recognize that trading is a risky business and that there is no magic formula to get rich quick.

Start with a small account that you can afford to lose and focus on developing a solid trading plan and risk management strategy. Be patient, learn from your mistakes, and don’t get discouraged by losses.

Remember, trading is a marathon, not a sprint. By setting realistic expectations and taking a disciplined approach, you can increase your chances of long-term success.