Setting goals is one of the best ways to motivate yourself. Goals help you stay focused on the issues that will have the most significant impact on your results. Goal-setting can be particularly important for traders and investors as it is very easy to give in to inertia in a difficult market. Doing nothing is very easy once you buy a stock.
Trading is usually a solitary pursuit, and it can be difficult to stay motivated when you are sitting in front of your computer and the market is not cooperative. There is no boss looking over your shoulder, so when the going gets tough, it is easy to give up and blame the lack of success on outside factors.
The reality is that great trading is a grind over a long period of time. Successful traders work on cultivating grit and determination that will keep them going when the market goes through an inevitable down cycle.
It Isn't as Easy as It Sounds
Setting goals for trading and investing isn't as simple and easy as it sounds. We obviously want to produce the best returns that we can, and in many cases, that is the extent of goal-setting for many market participants. "I'm just going to try to make a lot of money" is what they tell themselves.
While that is the desired outcome, it is too vague and uncertain to have any real motivating value. Traders need to view goal setting in different ways.
The best know form of goal is the performance goal. "I'm going to make $X per day or week by short-term trading." The problem with this sort of goal setting is that we are always at the mercy of market conditions. There simply may not be many good opportunities and there will always be an element of luck involved no matter how hard we work at trading. We may do everything right and work very hard and still not hit our financial goals.
I recently had a discussion with traders on my website about setting daily goals. Pure daytraders found it very helpful to set a clear dollar goal each day. What was most interesting was that for most of these traders, the great value of the daily goal wasn't that it motivated them to keep pushing for more gains. The key issue was that they stopped trading when they hit their goal, and that keeps them from overtrading. For many daytraders, the problem is that greed drives them to take on too much risk, and they end up giving back the good gains they have already accumulated. In this case, the dollar goal was more of a way to control risk rather than a motivating factor to push them to try for even more profits.
Setting dollar goals becomes much more problematic when you move into position trading and longer-term investment. Instead of staying patient and waiting for good stock picks to eventually work, a dollar goal may drive you to churn and trade in a frenzy to try to earn a set amount of money within a certain time frame. There is an inherent conflict between a high level of trading activity and reaching a certain financial goal.
Setting a Target Level
Rather than set a specific dollar goal for a certain time frame, I tend to set a target level for my portfolio. I want to hit a certain round number as quickly as I can, but I don't have a hard time frame for doing so. This motivates me to not allow losses to grow too big, and it motivates me to keep looking for new ideas that will help increase shorter-term results.
A less rigid approach to financial goals works better when it comes to investing and trading, but there is another form of goals that can be employed by traders and investors as well. This second form of goal setting is behavioral or process goals. These goals are focused on behavior that will help us to better achieve financial goals.
For a trader, a good behavior goal might be to study charts for two hours each day or to spend a certain amount of time developing a new trading methodology. These goals involve things we can control, and if we choose the right endeavors, then they will help us better achieve financial goals.
Here are two examples of behavior goals that I use. The first is that I will spend at least one hour each day looking at charts, studying fundamentals, and researching so that I can identify one good stock pick. Often that stock pick will be my 'Stock of the Week'. My goal is to find that pick. It may turn out to be a dud, but the process of spending a certain amount of time looking for that pick every week is a goal that pays off over time.
Another behavior goal I use is to spend a certain amount of time contemplating every stock that I own and having a clear plan of how I will handle it as the market develops. Will I buy more at certain points? Will I take a stop at some level? At what point do I take gains? And so on. By having a specific behavioral goal for developing a trading plan, I will improve my trading and will be in better shape to reach my financial goals.
Goal-setting is a great way to motivate yourself, but it won't work if you do not have very clear and specific goals. If your only goal is to make a lot of money, it isn't going to help you much unless you have behavior goals in place to enable you.
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July 09, 2022 at 09:00PM
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Designing Goals to Improve Your Trading and Investing - RealMoney
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