May 26, 2021
How to Set Trading Goals that Mean Business
Most traders and people learning to trade have trading goals. That’s a good thing because goals are very important.
However, the problem in most cases is that these goals have no practical purpose other than sounding fairly motivational.
The issue comes down to how we set our goals in the first place. A lot of the time, our goals just become one big wish list. After all, if you’re going to choose something that you want to achieve in your life, you might as well go big or go home!
Unfortunately, these goals often just become a source of guilt or disappointment when you look back on them and realise you haven’t achieved anywhere near what you wanted to.
What tends to happen with these huge goals is one of two things:
The worst case is that you need the discipline of a monk every single day to come anywhere near to conquering them, so you end up subconsciously giving up on the goal shortly after you start.
The best-case outcome is that you do manage to achieve brilliant things. But since these achievements are not quite at the level of the goals you set, you still feel disappointed at your perceived lack of accomplishment.
It’s a lose-lose situation!
Instead, I want to explain how I approach setting trading goals that ensure they’re practical and will help me get to where I want to be.
The purpose of a goal
First things first, what is the point of setting a goal?
Of course part of it is that they’re motivational. But we don’t just want empty motivation, we want motivation that ends up driving meaningful action.
We need to think of the goal as being the point to which all our actions are going to be directed. It’s almost as if the goal is the compass guiding what direction we need to be going in with the things we do. But there are a number of important criteria this goal has to fulfil for us.
The first thing is that it has to be something you genuinely want to achieve. If the outcome is not desirable enough to you, for one reason or another, you won’t be driven enough to achieve it and this means you’re unlikely to take the actions and effort needed to get there.
Your goals should be realistic but uncomfortable
Next, it has to be something that’s realistic and achievable, and I think this is where most people hold themselves back. It’s good to be super ambitious, but no one is forcing you to make this goal the only one you’ll ever have.
If you set a goal a little bit more down to Earth, then when you hit it you can set another goal.
This means, if you set goals just a bit outside your comfort zone, it’s something you can definitely achieve but you’ll have to push yourself a bit to get there. This will be more motivational because you can always see that finishing line.
When you hit that goal, you’ll now have momentum. You’ll see you achieved that goal just outside your comfort zone, so now you can push yourself a bit further with the next one.
Rather than having this huge goal that leaves you with a disconnect between where you want to be and what you should be doing right now, instead, you are moving forwards towards a better version of yourself and the better life you want to live.
On the other hand, it’s important that the goal really is out of your comfort zone. It has to push you and require you to grow to achieve it. If not, you’ll just smash the goal without having to really try and that’s not going to motivate you or progress you towards where you want to be with your trading. You’ll just be doing things you already knew you could do.
The next point is really important for everyone, but especially for traders.
Base your goals on things you have control over
I would say the vast majority of trading goals I hear about fall into this trap. The goal needs to be based on something you have control over. It can’t rely too much on external factors you have no control over or rely on aspects of luck. Otherwise, it’s not something you can work towards.
To give you an extreme example, if I set the goal that I want to win the lotto this year, is that something I can really work towards? I can buy more lottery tickets, but it’s still largely out of my control.
This is the same when people say they want to achieve an average return above a specific percentage each month, or they want to double their account by a certain date. They’re relying too much on things that are out of their control.
Of course, you can have a system that is statistically profitable over time. But you have no idea from one month to the next what is going to happen in the markets.
You don’t know what the trading conditions will be like, how many opportunities there will be, whether you will encounter a losing streak. You might execute your system to perfection, but that’s not a guarantee of a particular return.
For example, let’s say you set a goal of making a 50% return. How is that different from achieving a 40% return, in terms of the actions you need to take?
Maybe you’ll need to open more trades, start risking bigger amounts and have more profitable outcomes.
But then what happens if you aren’t on track to achieving these things?
You will start taking more desperate actions to try to force them, which will end up harming your trading performance. You’ll risk more, overtrade, force trades, hang onto losing trades until they become winners and all kinds of other things that aren’t going to actually improve your trading.
Instead, you should think about things you can set as your goals that are within your control and will actually facilitate better trading. Things that will give you the greatest possible chance of achieving the highest risk-adjusted return you can, regardless of what that return ends up being and what the market throws your way.
For example, you could set goals based on improving specific controllable aspects of your risk management. By doing that, your losing trades will have less of an impact on your account balance, therefore improving your overall profitability. Another option is to set goals based on your preparation each day or your ability to stick to your system. These are things within your control that will facilitate better trading.
Whether your return ends up being 5%, 20% or 100%, it doesn’t matter — even beginners can YOLO an account and achieve astronomical profits based on luck. What matters is that you’ve improved your trading and given yourself the best chance possible of achieving the best returns without forcing it.
How to achieve your goals
Once you have set your goals, there are two things you’re going to need.
The first thing is that you need a clear, actionable plan of what you need to do. I always recommend starting from the end and working backwards from there. Assume you’ve already achieved the goal and think backwards about what steps would have led to it happening.
The second thing is that you need to know what type of person would execute that plan. What behaviours, habits or daily rituals would the sort of person that easily executes that plan have? These will become your focus each day.
Most people focus on the actions they need to take, but there is often a reason why they haven’t taken those actions in the past. Instead, if you focus on becoming the person who would naturally take those actions and execute the plan, you’ll reduce the friction you encounter when working towards your goals.
I hope you’ll put these steps into practice and start making your goals represent something meaningful that contribute to the process of you becoming the great trader you know you can be.