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How to Set Up Effective Trading Goals

How to Set Up Effective Trading Goals

2019-06-19 15:50:00
Ben Lobel, Markets Writer
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Trading Goals - Main Talking Points:

  • Why set trading goals?
  • What your trading goals shouldn't be
  • The effectiveness of process-oriented goals
  • Goal tracking and measuring your progress
  • Trading goals: A summary

Setting trading goals can be a useful endeavor to help you navigate the markets, but some goals are more useful to set than others. In this piece, we’ll look at the right and wrong type of forex trading goals to aim for, why the right goals make sense in context with your trading plan, and how to track the progress of your goals.

Watch the video above for our analyst Paul Robinson’s account on best practice for goal setting. He discusses why making money may not be the be all-end all, the danger of meaningless goals in a cyclical market, and how to use goals to refine discipline and consistency.

Why Set Trading Goals?

It is important to set trading goals for two main reasons – to help you stick to your trading plan and to allow you to trade more consistently. For those new to trading, this will mean setting a process-orientated goal rather than one focused on outcomes. For example, goals based on following strict risk management and sound technical analysis, and even a daily routine involving exercise and a balanced diet, will encourage more consistent trading.

What Your Trading Goals Shouldn’t Be

By contrast, setting a monetary goal is not a useful trading goal. This is because markets are dynamic and don’t provide opportunities in linear fashion; some periods of trading are good and will suit your trading style while other periods won’t. Protecting the trading capital you have is more valuable than setting arbitrary financial targets, since traders have no control over the timing of favorable market conditions.

Other common goals which are hollow are those that are not specific enough or cannot be easily measured. Examples include ‘be more disciplined’, ‘be more consistent’, 'trade this or that strategy better', and so on. How exactly do you achieve or measure those? Overarching goals such as these are better broken down into smaller, more process oriented goals that are more achievable.

The Effectiveness of Process-Oriented Goals

As opposed to outcome-oriented goals, process-oriented goals can be useful to help you follow your trading plan. Creating goals that support your plan can help keep you focus on the details that lead to good trades.

One way to do this is to think of following the process as ‘If, then…’ statements – ‘If this [event] happens, then I will do this.’ For example – ‘IfEUR/USD pulls back to a certain price level and posts a key-reversal bar, then I will enter long’. It could be any number of criteria depending on your trading style, but the point is to bring attention to doing the right thing according to your plan.

If you follow your rules, then regardless of the outcome – win or lose – it was a successful trade. If you have an edge with proper risk management rules (another set of rules/goals), then you give yourself a chance at profitability over time.

One shouldn’t think about profitable trade as ‘good’ trades, and unprofitable as ‘bad’ trades. You can take a ‘good’ trade and it still be a loser (as many will be), and a ‘bad’ trade and make money. Keep in mind, poor behavior which leads to a profitable outcome is negative reinforcement, and conversely the same can be said about good behavior being positive reinforcement. You want to make sure you are focused on the latter.

Goal Tracking and Measuring Your Progress

Goal tracking and measuring your progress are key to ensure your strategy is working and to keep you accountable. One powerful way to make sure you are trading in accordance with your plan, is to use a trading checklist and a trading journal. This not only keeps you focused on making proper trades, but also highlights your weakness, areas you need to work on. Those areas you need to be worked on can become new goals on which to focus.

For example, maybe you are having difficulty with sticking to your stop-loss or target objectives. This often stems from too aggressive of a position size. The simple fix here is to reduce the risk-per-trade so that you aren’t making emotional decisions because your P&L swings are too big.

One idea is to create a scorecard for each trade, where you allot a certain number of points per facet of the trade and run a tally to see how effectively you are sticking to the plan. This will highlight areas of weakness and provide clarity on what you need to work on.

All-in-all, by emphasizing goals geared towards ‘doing the right thing’ you will best set yourself up towards achieving long-term profitability. There are certainly no guarantees, but if you are just ‘slinging it around’ without structure and proper goals, any short-term success achieved isn’t going to be sustainable.

Trading Goals: A Summary

In summary, process-oriented goals will be more effective than outcome-oriented goals. Setting such goals can help put you in the right mindset to trade to the best of your ability, rather than setting a monetary goal for example, which would only serve to pressure you into trading too often, or trading recklessly. Highlighting process over outcome gives you the best chance for financial success in the long-term.

You should always have atrading planthat covers how you will enter and exit trades, how your money will be managed, the markets traded, and your risk parameters.

And keep it simple. For example, selecting a few effective trading indicators rather than trying to apply all of them will result in better focus. Simplifying your technical analysis approach can cut out a lot of noise and contribute to becoming a better trader.

Having trading goals that compliment a solid strategy will help you build confidence in your trading. Download our free guide for more information about how to build confidence in your trading, and be sure to check out our range of additional guides to help you in your trading journey, whatever your skill level.

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