"The Psychological Side of Expectancy By Van K Tharp Ph.D.
In the real world of investing or trading, expectancy tells you the net profit or loss that you can expect over a large number of single unit trades (One share of stock or one futures contract would be a single unit). If the total amount of money in the losing trades is greater than the total amount of money in the winning trades, then you are a net loser and have a negative expectancy. If the total amount of money in the winning trades is greater than the total amount of money in the losing trades, then you are a net winner and have a positive expectancy.
However, there is another side to expectancy – the psychological side. Indeed, the psychological side may be much more powerful than the side that involves determining the historical expectancy of one’s system. The psychological side revolves around one of the laws of the mind – whatever you expect to happen does.
The psychological role of expectancy is paramount. If you make two lists – what you value the most and what you most want to avoid – you’ll find that the combination of the two lists perfectly describes your experiences in life. For example, if the most important values in your life include family, success, fun, honesty, and friendships, you’ll probably have all of those things in your life. If money and success are not among the top five, however, you may not be bringing them into your life.
You also bring into your life the things you most want to avoid. For example, if you have a list of things to avoid that includes not being taken advantage of, avoiding rejection, avoiding change, avoiding confrontation, and avoiding anything risky, then you probably also have a lot of those qualities in your life. Why? If you dwell on what you want to avoid, you give it energy and that’s what you get. As a result, your life will be a direct combination of the things you value and the emotions you want to avoid, depending upon how much time you dwell upon each of them.
Whatever you put into your mind, whatever you expect – whether positive or negative – you tend to draw into your life. Consequently, you are much more the architect of your own life than you probably ever thought.
Your reaction to what I’ve stated might be “If that’s true, why should I do any research in the market? Why should I do historical testing to determine the expectancy of my system? If what you say is correct, then I should just think good thoughts, enter into a trade, and reap the reward of my good thoughts.” Unfortunately, it’s not that simple!
Wishing or hoping will not make you a lot of money in the market. Indeed, there’s a great deal of difference between expecting to win and hoping to win.
When I say that you get what you expect, it doesn’t mean that you can forget to do any research or preparation and just expect to be a winner. Perhaps you could do that if you were totally clear psychologically, but very few people, if any, reach that condition. We all have issues in our unconscious mind that we tend to play out in real life over and over again. My guess is that the people who have done enough psychological work to be fairly clear will be eager to do the research to be sure (have the confidence and the positive expectancy) that they will trade well.
What I would suggest is that you make sure you have a mathematical positive expectancy in your trading. But in addition to the mathematical positive expectancy add some psychological expectancy."
"About Van Tharp: World-renowned trading coach, author and psychologist Dr. Van K Tharp is widely recognized for his best-selling book ‘Trade Your Way to Financial Freedom’ and his outstanding ‘Peak Performance’ Home Study program – a highly regarded classic that is suitable for all levels of traders and investors."
"The above article is excerpted from Van Tharp's Special Report on Expectancy."
Tharp also has a forum at his site plus additional archived newsletters :
http://www.iitm.com/index.html
I recall a manager talking about the high expectation of a broker they’d hired who was under performing until learning he was going to be a father and his wife would be giving up her $60K teaching job, rewarding their decision by becoming a top producer – is that an example of ‘motivation’ ?
Already asked by Chump, what’s your motivation to trade Dugan51 ?
