The Winning Way To Set Trading Goals

In life, if you really want to achieve something — set a goal. Most people start out the New Year by resolving to lose weight or get in shape and fail miserably at those tasks. If on the other hand, everyone resolved to lose just 5 pounds or to walk briskly for 20 minutes twice each week, many of those resolutions would be kept.

In order to make goals viable and achievable, they have to be concrete and realistic. As human beings, we are very bad at abstract targets but set a hard number in front of us and we will go after it like a bloodhound on a hunt.

Yet when it comes to trading, many gurus will tell you NOT to set goals. The markets are utterly unpredictable, they’ll say. You can’t set hard targets on a daily basis, like a car salesman or donut store owner. Financial speculation just does not lend itself to consistency, so it’s not advisable to set targets, you’ll just get frustrated.

It is true that trading is not like any other business. Unless you are a dealer and have reliable customer flow against which you can trade, financial speculation has all the consistency of unset jello. Some days every trade turns to gold and other days you do nothing but bleed money. In that environment expecting to make a steady daily paycheck is woefully unrealistic.

But that does not mean that traders should not set hard target goals. It simply means that those goals should be measured on a longer time frame than 24 hours. If you are trading a high-frequency system, one of the best ways to measure your performance is to compare the actual results against results on a monthly, quarterly and annual basis.

By having at least 100 trades in your records, you will be able the law of large numbers tell you if the strategy is performing to spec or not. Looking at your trading from a longer term perspective eliminates most of the day to day angst of our profession and allows the trader to examine his performance in a rational, quantifiable way. It also creates the single most important aspect of goal setting — realistic expectations.