Setting Goals, From Joe Ross's Newsletter (July 2008)
Joes' Trading Tidbits
Successful traders and investors set high goals
and make specific plans to achieve them. Goals can be motivating, and they
don't have to be just about gaining monetary wealth. The more specific the
goal you set, the better. Abstract goals often seem impossible to achieve and
are weak motivators. Although dreamers can succeed, nothing much happens until
they take the actions necessary to make the dream come true.
By breaking down a larger goal into specific steps, or sub-goals,
you will be more likely to achieve the goal. Rather than a misty, undefined
fantasy, specific immediate goals help you to see how even a seemingly
unattainable larger goal can be realized.
When you see the specific details, you will be more able to develop plans
for achieving your longterm goals. When specific goals help you see how your
broader goals can be achieved, they can be highly motivating. But goal setting
isn't straightforward when it comes to trading. Setting a goal to become
a "winning trader" without a specific set of sub-goals, such as
planning to learn specific trading strategies or planning to practice executing
trades in a variety of market conditions over time, is simply not sufficient.
It is also possible to set a goal that is too specific. It can be so specific
that it interferes with your ability to trade or invest. For example, trying
to reach a particular dollar amount each day can actually be self-defeating.
One disadvantage is that trying to achieve a specific dollar amount might
cause you to make poor, impulsive decisions, due to putting too much pressure
on yourself. In the end it may cause you to overtrade.
The pressure of this overly specific goals may cause you to take poor trading
setups or make poor investing decisions because you feel a sense of urgency
to reach a specific dollar goal. Such an approach usually fails. When you
take poor setups, you often end up losing money. In addition, a daily or
weekly dollar goal tends to make you think that you should trade every day,
or all day long, regardless of whether or not the market has opportunities,
or regardless of whether or not you are in an optimal mental or emotional
It is often wise to let the market tell you how much it is willing to give
you on a particular day or week. You can't always dictate how much you can
make. It's also wise to stand aside when you see conflicting market information
or when you are in poor spirits. By setting a specific amount to make, though,
you'll tend to feel guilty about staying out of the market when you are either
in poor spirits or when the market is just not conducive to profitable trading
We are in just such a time now. For instance, currently, there are many bargains
to be had among great global enterprises. But it may be too early to jump
in. Share prices may drop quite a bit more before we see the market bottom.
But a goal that is too specific can cause you to jump into the market much
too soon, and consequently have to suffer a huge drawdown before the actual
market bottom is obvious on the charts.
It is a paradox, but when you focus on outcomes, you will have trouble reaching
them. When you focus on the process of trading or making sound investments,
and act as if you just don't care what happens, you'll end up making more
profits. Rather than focus on dollars, focus on whether you follow your trading
or investing plan. Look at how many justified wins you achieve, rather than
at the money you make. If you trade consistently and according to plan, you'll
end up profitable (assuming you use sound trading and investing methods).
In addition, you will feel more carefree and detached from the outcomes.
When you focus on specific money amounts, you'll tend to think of the money
in concrete terms; you'll think of what you can buy with the money, rather
than think of it as just abstract points or ticks that you work with.
Goals can be motivating when used in the proper way. It
may be nice to occasionally look at how much money you are making, such
as once a month. If you focus on it too much, however, it can be a disadvantage.
You will put extreme pressure on yourself to perform. You may feel euphoric
when you make big wins, but discouraged when you face losing trades. It's
better for your emotions to keep things as objective as possible, and that
usually means focusing on the process of trading consistently and decisively.
The more you can focus on the process, the more profitably you'll trade
in the long run.