Last Updated on May 8, 2024
Setting well-defined and practical goals is the first step toward creating a successful trading strategy. These goals will guide your trading journey, helping you remain motivated and disciplined, especially during turbulent market periods.
In this article, you will learn how to set realistic goals and track your progress to ensure you always act according to plan.
The Importance of Setting Trading Goals
Every successful plan or strategy begins with a goal. Only when that goal is achieved can we say that a course of action has succeeded. This principle applies to trading as well.
Setting realistic trading goals guides you and provides a clear direction as you navigate the financial markets. Goals give you something to work towards, helping you prioritize your efforts and make strategic decisions. They also help you remain on track so you don’t get easily swayed by impulsive or emotional trading decisions.
Trading can be challenging and stressful, especially during periods of intense market volatility. By setting goals, you are constantly reminded of why you are trading, which helps build discipline and boosts motivation.
Having well-defined goals also provides a useful benchmark for measuring your trading progress and the effectiveness of your current strategy. That way, you can make data-driven decisions, adapt and optimize your trading strategy over time.
For instance, if you are not meeting your goals, you can evaluate your recent trades to identify areas that require improvement and take corrective actions. On the other hand, if you are exceeding your goals, you can determine what is working well and leverage it further to enhance your trading success.
The First Rule of Trading Goals: Keep Them Realistic
If a goal isn’t realistic, it isn’t really a goal – it’s wishful thinking.
The dictionary defines realistic as “having or showing a sensible and practical idea of what can be achieved or expected.”
As a trader, this means your goal must be attainable, given your trading capabilities, capital, timeframe/dedication, and level of motivation. Keep in mind that what may be realistic for you may not be realistic for another trader. As a novice, it is unrealistic to expect to set the same goals and hit similar targets as a seasoned trader.
When setting goals, it’s also essential to take into account the trading realities. For instance, markets are generally unpredictable, so even the most well-researched strategy can still result in significant losses. Your analysis of a particular trend or market action could often end up being wrong, no matter how much time you have put into it. Keep that in mind when setting goals to ensure they are realistic and that you won’t end up disappointed in case you don’t hit them.
How Setting Unrealistic Goals Impacts You as a Trader
First and foremost, unrealistic goals can lead to trading dissatisfaction and frustration. When you set goals that are too ambitious or unattainable and consistently fail to meet them, it can erode your confidence and motivation.
Setting unrealistic goals can also increase the risk of emotional trading, leading to impulsive and costly trading decisions. Before you know it, you may be taking excessive risks in an attempt to hit your goals quickly or engaging in reckless trading behavior, such as overleveraging or refusing to cut losses when you should.
Another potential impact of setting unrealistic goals is that it can significantly decrease your trading performance. When your goals aren’t aligned with your trading skills or market conditions, it can result in poor decision-making and trading mistakes. For example, you may force trades or deviate from your trading strategy in a desperate attempt to meet unrealistic goals, which can result in suboptimal trading outcomes.
Finally, unrealistic goals can make it difficult to track your trading progress. Because the end goal itself is impractical, everything you are doing to achieve will seem moot, which will hamper your ability to assess your progress objectively and optimize your trading strategy. This will eventually hinder your long-term trading performance.
How to Set Realistic Trading Goals
Now that we’ve established what qualifies as a realistic goal, the next step is understanding how to set them up. It’s essential first to identify the types of trading goals suitable for your trading style, time horizon, and financial objectives.
There are two main types of trading goals, including:
- Short-term trading goals: These goals are focused on achieving specific trading targets within a relatively short period, typically weeks and months. For example, you may set a short-term trading goal to achieve a certain number of profitable trades within the week or to attain a specific percentage of return on investment (ROI) for the month.
- Long-term trading goals: These goals are typically set for a longer time horizon, usually ranging from several months to years. They are focused on achieving broader financial objectives, such as accumulating a specific amount of trading capital over a certain period or building a diversified portfolio with a specific allocation to different asset classes.
Aside from these two main types, traders can set other goals as well. For example, there are performance-based goals, which are centered around improving trading performance and acquiring specific trading skills. For instance, you could set a goal to become better at risk management or to optimize your trade execution to minimize slippage and reduce trade errors.
There are also educational and self-development goals, which are critical for every trader. Examples include completing a trading course to learn a new analytical technique or reading a certain number of trading resources to expand your trading knowledge and insights.
As a trader, you will likely set a combination of these goals. The key is ensuring they align with your trading style, risk tolerance, and overall financial situation.
Now that we’ve covered the types of trading goals, let’s discuss how to set realistic ones.
Identify Your Trading Style
Your trading style refers to the methodology you use when making trading decisions, encompassing many considerations that influence your trading activities.
First, consider your trading horizon or the time duration for which you hold your trades. For example, the day trading style might be your best fit if you prefer to trade volatile stocks with significant intraday price movements. On the other hand, if you are comfortable holding positions for a longer period, swing trading may be more suitable. If you have skills in computer programming, algorithmic trading could be an option. Your trading style depends on how you want to approach your trades.
There is no one-size-fits-all approach to trading styles, and it’s common to combine multiple trading styles throughout your trading career. It’s also important to objectively assess your strengths and weaknesses as a trader and be honest about what you can and can’t do.
Your risk tolerance largely determines your trading style. If you are generally more risk-averse, you may avoid specific markets that pose higher risks, such as derivatives and cryptocurrencies. Your risk tolerance also impacts decisions such as position sizing and entry/exit points.
Lastly, your market expertise and knowledge play a role. Some traders prefer to specialize in one market, while others diversify their trades across multiple markets. Your market expertise also influences the analysis tools you use to identify trading opportunities.
Defining and Aligning the Goals to Your Trading Style
Defining and aligning your goals to your trading style is crucial for maintaining consistency in your trading activities. To do this, it’s important to establish your trading goals and align them with the S.M.A.R.T framework:
- Specific: Your goals should be clear.
- Measurable: Your goals should be easy to evaluate.
- Achievable: Your goals should be practical and within reach.
- Realistic: Your goals should be realistic, considering your trading style and risk tolerance.
- Time-oriented: You have to have a defined timeline for achieving your goals.
Evaluate Your Trading Style in Relation to Your Goals
Consider factors such as the time horizon of your trading style, the risk tolerance involved, and the potential returns you can expect from your trading strategy.
Ensure that your trading style is well-suited to achieve your trading goals. If not, make adjustments as needed. For example, suppose your trading style is more suitable for short-term trading, but your goal is to achieve long-term investment returns. In that case, you may need to re-evaluate your strategy and make necessary changes to align them.
Develop and Follow Your Trading Plan
With your trading goals aligned with your trading style, the next step is to develop your trading plan. This plan should include your trading strategy, how you intend to manage risks, and any other relevant specifics.
Follow your trading plan diligently and maintain discipline as you pursue your goals.
Remember that your goals and style aren’t set in stone. You may need to review and adjust them periodically based on changing market conditions, your trading performance, and personal circumstances.
Measuring Trading Progress
Tracking your trading progress is essential for staying on top of your trading performance and identifying areas for improvement. It also helps keep yourself accountable.
One effective method for measuring your progress is by maintaining a trading journal – a record-keeping tool where you can log your trades.
In your trading journal, you can record information such as your entry and exit points, trade size, risk management parameters, and profits/loss at the end of the day. Regularly reviewing your trading journal lets you objectively evaluate your performance based on your goals.
You can also use your journal to track qualitative factors such as market conditions, mindset, and emotional outlook. Reflecting on these factors can provide insight into how your psychological state may impact your trading decisions.
One of the best applications for keeping a trading journal is Journalytix.
Goal Adjustment
Based on the results of your performance evaluation, you may need to adjust your trading goals to ensure they remain realistic and aligned with your trading style. For example, your analysis might reveal that your current goals are too ambitious and impractical based on current market conditions or your trading performance. In such cases, you’ll need to review and adjust your trading goals.
Remember to adjust them based on sufficient objective data gained over a given period and not just rely on information from a single trade or short-term performance. Consider the broader context to make informed decisions about goal adjustments.
Reflect on Your Progress to Stay Motivated
Reflecting on your progress is crucial to staying motivated in your trading journey. Whether you have achieved your trading goals or have had to make adjustments along the way, taking the time to appreciate the progress you have made can help you stay on track and maintain motivation.
For instance, if you have achieved them, celebrating your success can boost your confidence, reinforce positive trading habits, and maintain a positive mindset. On the other hand, if you are struggling to achieve them, reflecting on the reasons why you fell short can provide visibility into what you should be doing differently. Ultimately, looking at how far you’ve come can help you become better at setting and achieving realistic trading goals.
Why Do Traders Fail to Achieve Their Trading Goals?
One reason is becoming too preoccupied with attaining goals and overlooking the realistic aspects of trading, leading to irrational decisions.
Another reason might be a lack of solid execution, as setting realistic goals alone isn’t enough. If you don’t put in the required effort, your trading goals will remain out of reach.
Lastly, it could be due to a lack of discipline, as traders who deviate from their established trading plan at the first sign of trouble are unlikely to achieve their goals.
Conclusion
In conclusion, trading goals are essential for keeping us focused and motivated. However, it’s important to distinguish reality from wishful thinking and acknowledge that not all goals are easily achievable, given the nature of financial markets.
Nevertheless, with discipline, consistency, and perhaps a little luck, you can start climbing the ladder of success. Remember to track your trading progress, hold yourself accountable, and make timely adjustments along the way.
Now, it’s time to implement your plan and crush your goals.
