How To Set Up Trading Goals

Last Updated September 9th 2021
7 Min Read

Some people think that trading is a random process where people make money by chance or by luck. Nothing could be farther from the truth. Just like any other business, trading also requires a lot of planning and hard work for success.

It is similar to running a business in the sense that a trader should have some goals, plans in place to achieve that goal, investment, and continuous management. So, while it might be true that sometimes luck can help achieve a gain or two, trading is not something you indulge in based on whims and fancies. You need proper planning and hands-on management to succeed as a trader. 

Setting up trading goals is essential if you wish to be a successful trader. Without a tangible goal to work towards, it is not possible to remain an active, successful trader. Let’s see how you can set up trading goals and open up the path towards success.

Questions Answered

Why should you set trading goals and what are the important factors to consider while setting goals?

  • What should not be your trading goals
  • Why are process-oriented goals effective
  • How to implement goal tracking and how to measure your progress

Setting trading goals is a useful exercise that’ll help you navigate the markets. However, some goals are more useful than others. So, it is important to identify the right and wrong goals and to understand why setting the right goals will be a better idea in a trading scenario. In this context, it is important to remember that money-making may not be the be-all-end-all and that meaningless goals can be a threat in a cyclical market. Furthermore, goal setting not only helps you achieve what you set out for but also to do it in a refined manner, over and over.

Why Set Trading Goals?

That brings us to the crucial question – why set trading goals? Isn't it enough to know what you want and achieve that? Well, it might work for some, but in most cases, it is likely to lead you nowhere.

Setting trading goals is important for two main reasons:

  • To help you stick to the trading plan
  • To allow you to trade consistently

For newbie traders, this means setting a process-orientated goal instead of a goal focused on outcomes. This is a wholesome experience as goals adhering to precise risk management and sound technical analysis can include even daily exercise routines and a balanced diet to encourage more consistent trading.

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What Goals You Shouldn’t Aim For?

Although it might sound strange, the truth is that it is not useful to set a monetary goal. Monetary goals will not be effective because markets are dynamic in nature and don’t provide opportunities in a linear fashion. It means that there will be some good periods of trading that would suit your trading style while at other times, it won’t. In such a situation, protecting your trading capital is more important than setting any arbitrary financial targets. This is also because traders have no control whatsoever over periods of favourable market conditions.

Likewise, you should also stay away from setting unrealistic and unmeasurable goals. For instance, you cannot set goals like ‘be disciplined’, ‘trade more consistently’, 'trade a particular strategy better', and the like. It is not possible to measure those goals. All goal-setting experts tell us to set SMART goals. The goals mentioned here are not SMART as they are not measurable or specific.  

So instead of focussing on such unmeasurable goals, you should focus on breaking down achievable, process-oriented goals into small chunks and work towards achieving them. That way you have a higher chance of success.

Why Are Process-Oriented Goals Effective?

In contrast to outcome-oriented goals, process-oriented goals can help you follow your trading plan. Creating process-oriented goals that support your plan also helps to keep the focus on those details which lead to good trades.

Sometimes setting process-oriented goals is as easy as following a process. For instance, you can take an ‘If, then…’ approach. It simply means you will set your goal in such a way that ‘if so and so event happens, then I will do this.’ In a trading context, it could be something like ‘if the EUR/USD pulls back to price level X and posts a key-reversal bar, then I will enter long’. You can create any number of such conditions or criteria according to the trading style you follow. The main point here is to bring attention to doing the right thing that fits into your plan.

You must remember that when you follow rules, irrespective of the outcome, it is a successful trade. Yes, even when you lose. This is because, with an edge over risk management rules, you are giving yourself a chance to earn profits over a longer period.

At the same time, you mustn’t think of profitable trades as good trades and unprofitable trades as bad. A good trade can still lose you money while a bad trade can earn you some. The only thing you need to concentrate on is to reinforce good behaviour even if it leads to unprofitable outcomes in the short run. If you reinforce poor behaviour because it results in a profitable outcome, it is negative reinforcement, and you should stay away from it. Only positive reinforcement can lead you to long-term rewards.

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Goal Tracking And Measuring Your Progress

All management experts would tell you that it is not enough to set a goal. It is equally important that you track and measure your goals. Without tracking and measuring, you cannot expect to make progress or succeed in trading.

You can keep a trading checklist and a journal to keep track of your progress. This will help you focus on the important aspects and engage in proper trading. Furthermore, a review of these could help you in identifying your weaknesses. Once you identify them, you can work on them. In short, the checklist and journal will help you fine-tune your trading process by focusing on the areas that need improvement. Voila, you get a new smaller goal too!

For instance, if you have difficulty in sticking to your stop-loss or target objectives, you will be able to identify them through the tracking methods. You might discover that the problem occurs because of your aggressive position size. You can fix it by reducing the risk-per-trade to make sure that you aren’t making decisions based on emotions but facts and figures.

Another idea is to create a scorecard for each trade, wherein you assign a certain weightage for each of the trades. Later you can tally them to see how effective you are in sticking to your plan. This process will also highlight the areas of weakness and offer clarity on what you need to work on.

Overall, emphasis on process-oriented goals will guide you to do the right thing regardless of the situation and set you up for long-term profitability. Of course, there is no guarantee in trading, but a structured approach is certainly more rewarding and fulfilling in the long run than winging it or acting on whims. Proper structure and realistic goals are very much attainable, especially since short-term success based on nothing, but luck, is unsustainable.

Conclusion

In short, process-oriented goals will always be more effective than outcome-oriented goals, especially in the long run. Setting process-oriented goals can help achieve the right mindset to trade to the best of your ability. This will bring sustainable results and is hence more preferable to set a monetary goal that might lead you to trade recklessly. The fact that you should prioritize the process over the outcome for successful trading cannot be emphasized enough. It is your best and realistic chance for financial success in the long term.

However, you should also have a well-thought-out trading plan covering details like trade entry and exit, money management, markets to trade, and your risk appetite. You must strive to keep it simple. Don’t go for everything at one go. Take simple, realistic, small steps like selecting few effective trading indicators in place of all. By simplifying your technical analysis method, you can cut out a vast amount of noise and get better at trading.

Trading goals that compliment your trading strategy are essential to building confidence in your trading abilities. This will further strengthen your journey towards becoming a successful trader irrespective of market conditions.

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