Setting goals is one of the best ways to motivate yourself. Goals help you focus on the issues that will have the greatest impact on your results. Goal setting can be especially important for traders and investors as it is very easy to give in to inertia in a difficult market. Once you’ve bought a stock, it’s very easy to do nothing.
Trading is usually a solitary pursuit and it can be difficult to stay motivated when you are 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’s easy to give up and blame external factors for your lack of success.
The reality is that great deals wear you down in the long run. Successful traders work to develop the patience and determination that will keep them going as the market goes through inevitable down cycles.
It’s not as easy as it seems
Setting goals for trading and investing is not as easy as it sounds. We clearly want to achieve the best possible returns, and in many cases this is the goal limit for many market participants. “I’ll just try to make a lot of money,” he tells himself.
While this is the desired outcome, it is so vague and uncertain that it has no real persuasion value. Traders need to look at goal setting in different ways.
The most well-known goal form is the success goal. “I will make X$ a day or week trading short term.” The problem with this type of goal setting is that we are always at the mercy of market conditions. There just can’t be many good opportunities and there will always be a factor of luck no matter how hard we try to trade. We can do everything right and work very hard and still not reach our financial goals.
I recently spoke to traders on my website about setting daily goals. Pure day traders find it very useful to set a clear dollar target each day. The most interesting thing was that for most of these traders, the great value of the daily target wasn’t that it spurred them on to more profits. The main problem was that he stopped trading when he reached his goal and this protects him from overtrading. The problem for many day traders is that they take on too much risk out of greed and tend to give back the good profits they have already accumulated. In this case, dollar targeting was more of a way to control risk than a motivating factor that spurred them on to strive for even bigger profits.
Setting dollar targets becomes more of a problem when you get into position trading and long-term investing. Rather than being patient and waiting for a good stock pick to eventually work, a dollar target can prompt you to brainstorm and trade to try to make a specific amount of money within a specific time frame. There is an inherent conflict between having a high level of trading activity and meeting a specific financial goal.
Set target level
Rather than setting a specific dollar target for a specific time period, I set a target level for my portfolio. I want to hit a specific round number as quickly as possible, but I don’t have a fixed time limit for it. It motivates me not to let the loss escalate too much and it causes me to look for new ideas that will help improve short-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 used by traders and investors. This second form of goal setting is the practical or procedural goal. These goals focus on behaviors that help us better achieve financial goals.
For a trader, a good practice goal might be to spend a certain amount of time each day studying charts or developing a new trading method for two hours. These goals involve things we can control, and if we choose the right efforts, they will help us better achieve financial goals.
Here are two examples of behavioral goals I use. The first is that I spend at least an hour each day looking at charts, studying fundamentals, and doing research so I can identify good stock picks. This stock pick is often my “stock of the week.” My goal is to find that selection. This may turn out to be crap, but the process of spending a certain amount of time each week looking for that choice is a goal that pays dividends over time.
Another behavioral goal I use is to spend a specific amount of time looking at every stock I own and have a clear plan of how I’ll handle it as the market evolves. Will I ever buy more? Will I ever stop? When do I start taking profit? Etc. By having a specific behavioral goal to develop a trading plan, I will improve my trading and be in a better position to achieve my financial goals.
Goal setting is a great way to motivate yourself, but it won’t work unless you have very clear and specific goals. If your only goal is to make lots of money, it won’t do you much good unless you have behavioral goals that enable you to do so.
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