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Beranda / Expectations for Trading or Investing Return

Expectations for Trading or Investing Return

Unrealistic expectations are one of the fastest ways to lose money in markets.
Not because markets are unfair—but because expectations shape behavior, and behavior determines outcomes.

For executives, professionals, and serious investors, setting the right return expectations is not about optimism or pessimism. It is about discipline, probability, and time.

Trading vs. Investing: Start With the Distinction

Before discussing returns, clarity matters.

  • Trading focuses on short-term price movements and tactical opportunities

  • Investing focuses on long-term value creation and compounding

Confusing the two leads to mismatched expectations—and costly decisions.

Realistic Return Expectations (Broadly Speaking)

Investing (Long-Term Mindset)

  • Annualized returns often range from 6–10% in diversified portfolios over long periods

  • Volatility is normal; consistency is not

  • Compounding—not timing—is the primary driver of wealth

Investing rewards patience, discipline, and risk management, not constant activity.

Trading (Active Mindset)

  • Returns can be higher—but so can losses

  • Results are non-linear: a few good trades often drive most profits

  • Many traders underperform due to overtrading, leverage, and emotional decisions

Trading success is less about average return and more about drawdown control and survival.

Why Expectations Matter More Than Forecasts

Markets do not punish bad forecasts as harshly as they punish bad reactions.

Unrealistic expectations tend to cause:

  • Over-leverage

  • Excessive risk-taking

  • Abandoning strategy during drawdowns

  • Chasing returns after they are gone

The biggest losses usually occur not from market moves—but from behavioral breakdowns.

The CEO-Level Framework for Return Expectations

Sophisticated decision-makers don’t ask:

“What return can I get?”

They ask:

“What level of risk am I being compensated for—and over what time frame?”

Key considerations:

  • Volatility tolerance

  • Liquidity needs

  • Time horizon

  • Capital importance (replaceable vs critical capital)

Returns are meaningless without context.

Short-Term Gains vs Long-Term Outcomes

High short-term returns are often borrowed from the future through risk concentration or leverage.

Long-term success depends on:

  • Staying invested

  • Avoiding catastrophic losses

  • Letting compounding work uninterrupted

Missing a few great years hurts more than missing a few good trades.

A Practical Rule of Thumb

  • If a return sounds too smooth, risk is being hidden

  • If a return sounds too high, time or probability is being ignored

  • If a strategy requires constant excitement, sustainability is low

Sustainable returns are often boring—and that is their strength.



Summary:

Clearly, anyone who trades does so with the expectation of making profits. We take risks to gain rewards. The question each trader must answer, however, is what kind of return he or she expects to make? This is a very important consideration, as it speaks directly to what kind of trading will take place, what market or markets are best suited to the purpose, and the kinds of risks required.


Let s start with a very simple example. Suppose a trader would like to make 10% per...



Keywords:

trading, investing, returns, profits



Article Body:

Clearly, anyone who trades does so with the expectation of making profits. We take risks to gain rewards. The question each trader must answer, however, is what kind of return he or she expects to make? This is a very important consideration, as it speaks directly to what kind of trading will take place, what market or markets are best suited to the purpose, and the kinds of risks required.


Let s start with a very simple example. Suppose a trader would like to make 10% per year on a very consistent basis with little variance. There are any number of options available. If interest rates are sufficiently high, the trader could simply put the money in a fixed income instrument like a CD or a bond of some kind and take relatively little risk. Should interest rates not be sufficient, the trader could use one or more of any number of other markets (stocks, commodities, currencies, etc.) with varying risk profiles and structures to find one or more (perhaps in combination) which suits the need. The trader may not even have to make many actual transactions each year to accomplish the objective.


A trader looking for 100% returns each year would have a very different situation. This individual will not be looking at the cash fixed income market, but could do so via the leverage offered in the futures market. Similarly, other leverage based markets are more likely candidates than cash ones, perhaps including equities. The trader will almost certainly require greater market exposure to achieve the goal, and most likely will have to execute a larger number of transactions than in the previous scenario.


As you can see, your goal dictates the methods by which you achieve it. The end certainly dictates the means to a great degree.


There is one other consideration in this particular assessment, though, and it is one which harks back to the earlier discussion of willingness to lose. Trading systems have what are commonly referred to as drawdowns. A drawdown is the distance (measured in % or account/portfolio value terms) from an equity peak to the lowest point immediately following it. For example, say a trader�s portfolio rose from $10,000 to $15,000, fell to $12,000, then rose to $20,000. The drop from the $15,000 peak to the $12,000 trough would be considered a drawdown, in this case of $3000 or 20%.


Each trader must determine how large a drawdown (in this case generally thought of in percentage terms) he or she is willing to accept. It is very much a risk/reward decision. On one extreme are trading systems with very, very small drawdowns, but also with low returns (low risk � low reward). On the other extreme are the trading systems with large returns, but similarly large drawdowns (high risk � high reward). Of course, every trader�s dream is a system with high returns and small drawdowns. The reality of trading, however, is often less pleasantly somewhere in between.


The question might be asked what it matters if high returns in the objective. It is quite simple. The more the account value falls, the bigger the return required to make that loss back up. That means time. Large drawdowns tend to mean long periods between equity peaks. The combination of sharp drops in equity value and lengthy time spans making the money back can potentially be emotionally destabilizing, leading to the trader abandoning the system at exactly the wrong time. In short, the trader must be able to accept, without concern, the draw-downs expected to occur in the system being used.


It is also important to match one's expectations up with one's trading timeframe. It was noted earlier that in some cases more frequent trading can be required to achieve the risk/return profile sought. If the expectations and timeframe conflict, a resolution must be found, and it must be the questions from this expectations assesment which have to be reconsidered, since the time frames determined in the previous one are probably not very flexible (especially going from longer-term trading to shorter-term participation).