Why Traders should NOT set money or percentage goals

By | February 17, 2015

First of all: Happy Maha Shivratri !!

On this auspicious occasion We as traders should make resolutions that should enable us to finally escape the unprofitable trading behavior . The truth is, after one week of great trading, most traders will fall back into old patterns and desperately chase the millions they think they can make by using bigger positions, taking trades based on guessing and looking for new and better trading systems. By considering and answering the following points, and not forgetting them throughout the year, you will come your goal of becoming a consistently profitable trader a lot closer.

 

Honest Self-Check

The first step towards becoming the consistently profitable trader, who lives from his trading profits, is being clear about where you are now.

Ask yourself the following questions to get a clear picture of your current standpoint as a trader:

  1. How long have I been trading? If you have been trading for a few years and still cannot see the light at the end of the tunnel, it is time to change EVERYTHING you do about trading.
  2. Am I close to making it as a trader? Is your account balance pointing down, are you constantly trading around break even or do you still get wild swings in your trading performance?
  3. Do I still make amateur mistakes, such as violating my trading rules, looking for new systems, shortcuts and expect to find a method that makes me rich quick?
  4. How often did I change my trading approach last year?
  5. How was my progress in 2014 overall ?

But more importantly, be honest when answering these questions. In the end, no one cares if you lie to yourself you should be accountable to yourself. Only you know how much it means to you to become a full-time trader. Without knowing where you are now, you cannot find ways to where you want to go.

 

Realistic Expectations And Goals

“If you have been trading for a few years, but still cannot make money, don’t expect to replace your day job within a few months.”

The next step is to set realistic expectations for what you think is possible to achieve in 2015. The trick here is NOT to think about the money and percentage gains you want to make, but think about yourself as a trader and the overall picture. It might sound weird because the trading industry is designed to make you believe that you can make loads of money with just enough leverage, but the truth is, money is secondary. The number one priority on your goal-list should be to transform yourself into a trader with a professional mindset and a winning attitude, rather than looking for get rich quick schemes and searching for the ‘best’ trading method.

The following points can serve as a guideline to create a goal-list that is realistic to achieve:

  1. I will not break my trading rules.
  2. I will not look for another system or trading method.
  3. I will not take trades based on the opinions I read on social media, recommendations by friends or the media.
  4. I will not add new indicators or trading tools to my charts.
  5. I will not widen my stop loss orders or add to losing trades.
  1. I will sit down every Sunday and review my past trading week.
  2. I will plan my trading week ahead and create trade-scenarios.
  3. I will write down all my trading rules.
  4. I will follow a strict money and risk management approach.

We will briefly explain the two most important points from the list and why they are so critical to trading success, or failure:

 

I will not look for another system or trading method

Trading is all about Mastering a single system not about learning 100’s of system. Ask yourself how many trading systems, methods or indicators you have tried in the course of your life as a trader, and count how many of them made you rich?! Yes, the number will be very close to zero. One of the main reasons why traders fail is because they believe that the system is the factor that makes the difference between a winning and a losing trader and so they never stop looking for new ideas about how to make money.

But what really happens is that every time you change to a new system, you start from point zero as a complete beginning trader. A new system means that you have to learn and test all trading rules, collect a sample size to estimate a rough win rate, test different risk:reward scenarios, try stop loss and take profit strategies, evaluate whether taking partial profits is beneficial or not, which entry rules make a difference to the accuracy of the system, on which instruments, timeframes and holding-times does it work the best.

 

 

I will sit down every Sunday and review my past trading week

Improvement is not possible if you don’t analyze your past trades and evaluate why things went wrong. Was your entry too late or too early, did you break your trading rules, the violation of which rules costs the most money, do you set take profit orders too far away and price fails to reach them, do you set stop loss orders too close and minor drawdowns take you out, is the average risk:reward too low for your win rate, does your trade management approach costs you money, will the set and forget approach work better…

Despite the fact that reviewing trades is work and requires time, most traders are not even aware of the different factors that play a role when it comes to tweaking a trading system. The majority of traders just believe that having a losing trade is the fault of their trading strategy and the way the strategy defines entries.

 

Conclusion

Setting specific goals for an amount of money you want to make or a definite percentage gain you want to achieve are not only dangerous for your development as a trader, but also unrealistic and not-achievable. Here are the two top reasons why you should not set money and return goals:

  1. You cannot predict the trading environment for the next year and, therefore, you are not able to estimate the performance of your trading strategy. (Will the following year be more trending or range-bound, will volatility be low or high, which global events or economic decisions will affect the markets to which degree, …)
  2. You create pressure for yourself that lead to trading mistakes. Pressuring yourself to make X amount of Dollars means that you will break this down into a monthly goal as well. If you then see that you still have to make 2 or 3 winning trades to achieve your goal, you are more likely to abandon trading rules and trade on pure-guessing, hope and greed – a combination that does not work well for a trader.

8 thoughts on “Why Traders should NOT set money or percentage goals

  1. kiran

    thanks for the valuable insights, truly makes one best trader

  2. Raj Menon

    Really excellent pointers here for me. Thank you very much!!

  3. Vinit

    Another awesome write-up sir. You have hit the nail on the head when you say ” Be honest to yourself. Eventually, no one cares if you are lying… Because at the end of the day, you have to be accountable to yourself.” I feel, any trader in the making must follow the rules(guidelines) mentioned in the post religiously and with due diligence.

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