The Dangers of Setting Trading Goals By Larry Benedict, Editor, Trading With Larry Benedict Goals… We’ve all heard a million times about how important they are. And how we should set them to achieve what we want out of life. We’ve known about the importance of setting goals since we were kids. But it’s not always the best advice to take when it comes to the markets. In fact, as I’ve seen firsthand, setting goals can actually be dangerous. Today, I want to explain why that is and share what I think is a far better and more realistic approach. It’s something I still use to this day… Unrealistic Goals When I started my career in the trading pits of the Chicago Board Options Exchange almost 40 years ago, I saw a lot of people come and go from the market. And I mean a lot… Some just couldn’t cope with all the pressure. For others, simply trying to get their trades filled was just too overwhelming, with hundreds of guys all screaming at each other at the same time. And I don’t mean that as any criticism… Until you’ve stood there with just your pen (to physically write out the old trade confirmation dockets) and your wits, it’s hard to appreciate how competitive it was. But the one characteristic I saw that brought most new traders undone was something beyond the sheer competitiveness of the trading floor. And it applies as much today as it did then… Most newcomers (and sometimes even old hands) set far too unrealistic goals. They simply wanted to make more money than the market would allow them. Playing Catch-up As you know, one of the key parts of goal setting is to have a fixed end date. That way you can break things into a steady series of what should be regular, achievable targets. And I say “should” for a reason. This is where so many traders come undone… Take, for example, a trader who sets themselves a goal of making $100,000 in their first year. Their daily goal becomes a piece of basic mathematics… Divide that $100,000 by roughly 50 weeks in the year, and that breaks down to $400 a day. The problem arises when they miss that daily target and decide to double the size of their trades the next day. Or if they have a rough few weeks, they go in big the following month trying to play catch-up. But overtrading, trading too big positions, or taking low-probability trades are ways to almost certainly make matters worse… Another losing month followed by even bigger catch-up bets then sets off an inevitable further downward spiral that eventually sees them out of the game. Different Approach That’s why I learned from blowing up my own trading accounts multiple times over that you have to have a different approach if you’re to survive. So if I have a rough trading period, I don’t double up the size of my trades. Instead, I do the opposite. I halve the size of my trades until I get things back on track. And if that doesn’t work, I halve that size again. All the while I still steadily bank any profits I can… I don’t hang on to a winning trade longer than I should in the hope of making even more money to catch up in my account. Doing so will often turn a winning trade into a loser. But the biggest change I made was to switch my overall approach… I went from aiming to hit a set target to instead marking myself against the opportunities on offer. That is, how well I traded given the opportunities that day… If the market was flat and quiet one day, I wouldn’t be too hard on myself if I didn’t make a whole lot of money. But if the market was busy the next day and I missed a lot of opportunities, I’d be down on myself and push myself to try to do better. Learning the difference taught me to only trade what was in front of me and not chase some far-flung goal. It’s also when my career really started to take off. And if you too change your focus like I did, I’m sure your trading will take off too. Regards, Larry Benedict
Editor, Trading With Larry Benedict
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