How To Set Trading Goals That Work

Let’s chat about something close to my chest, decided to type few words to my fellow traders out there. Decided to touch 'Trading Goals' subject, which I believe is strongly misunderstood. Let’s get on it then...

Just like any of life’s endeavours, becoming a successful trader requires goal setting. Unfortunately, many traders jump right into trading without giving the first thought to where they’d like their new found profession to take them.

I would argue that goal setting is the most overlooked aspect when it comes to trading. And in my opinion, attempting to profit from the markets without having clear goals in mind is like trying to steer a rudderless ship.

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.

But here’s the thing…

The trading goals I’m referring to are most likely vastly different from what you’re visualising right now. Chances are you’re thinking about a goal such as, make 200 pips each month.

Well, I hate to be the bearer of bad news, but that type of goal setting will get you in a lots of trouble. But if you’ve been trading for a while the chances are good that you’ve already come to that conclusion.

So what type of goals do you need as a trader?

That’s what I’m on about right now. We’ll cover three must-follow rules, and I’ll even give you some examples of the kind of goals you should be setting.

Let’s begin!

Focus on the Process, Not the Results

For anyone familiar with goal setting, this one is going to take some getting used to. You may well know that the number one rule when setting goals is to make them measurable and specific. By doing so, you give a goal meaning and also stimulate your subconscious mind to begin acting on your behalf.

So instead of writing, “I want to lose 15 pounds”, you write “by July 10th at 9 pm GMT I will have lost 15 pounds.”

See the difference?

The latter is specific and thus has more meaning while the former’s lack of detail is uninspiring at best.

When it comes to goal setting, specificity breeds results. And when it comes to setting goals for a business, most revolve around making a specific revenue or profit.

But as I’ve said in the past, trading is unlike any other endeavour you will pursue in your lifetime. Welcome to the toughest game ever played!

As a trader, you should avoid setting goals that focus on making a specific amount (pips or money) by a specified date and time, at least not in the beginning. Doing so is a sure-fire way to blow your account.

If you do this, you’re setting yourself up to trade too often and risk too much.

The market doesn’t care about your goals and it certainly doesn’t move on a set schedule, so why try to pretend that it does?

I get plenty of emails every month, and a significant portion of those include

a question about the amount of money that a trader can expect to make each month.

My answer is always the same, and it goes like this…

Don’t focus on the money, focus on the process.

You see, when you direct your efforts toward perfecting the process, the profits will follow naturally. The key word is “naturally” because any forced effort with the sole purpose of making money will end badly.

Ask me how I know...

So if you want the profits, focus on the process. Things like prudent risk management, robust technical analysis and patience that only allows for the taking of the most favourable trade setups are a great place to start.

These are the things that will turn your trading around.

Of course, this type of response will dissuade many, but that’s okay. I’d rather be up front with someone than try to convince them of some magic formula to make 2,000 pips every month, even if that means losing their attention entirely.

So what type of process-oriented goals should you set?

While this is highly dependent on your style of trading, here are a few general guidelines to get you started:

Outline your daily routine

Some factors directly affect your trading such as the strategy you utilise while others are more indirect like your daily routine. Unfortunately, these indirect forces are overlooked far too often because they don’t fall squarely into the realm of trading topics.

But make no mistake, what you do from the moment you wake up to the time you lay your head down at night impacts your trading performance.

For example, if you aren’t eating healthy and exercising often, this will have an adverse impact on your ability to achieve consistent profits.

This isn’t surprising when you consider that proper mental health is a key factor for those who find success as a trader.

Goal: Eat four to six healthy meals each day, exercise for a minimum of 30 minutes and get at least 7 hours of sleep each night (honestly – I cannot sleep that long).

Of course, you’ll need to do the legwork to figure out what’s healthy and what isn’t. But I think most of us know the basics, it’s just a matter of acting on that knowledge.

Construct a process for analysing market conditions

What’s the first thing you do when you sit down at your trading computer?

For most, the answer will vary depending on the day. But having a defined process for how you go about analysing market conditions is essential if you intend to achieve consistent profits.

This process should be the same every single day. This alone will help you develop discipline as it teaches your brain (and your body) to perform certain functions at specific times.

There’s a reason why military forces follow a particular routine every single day – it breeds discipline. Your process for analysing the markets should do the same (I’m former Special Forces Soldier, I know)...

Goal: Never take a trade until I have completed my process for analysing market conditions.

I’ll get into the details of what that process might look like in a future post.

Develop patience by limiting screen time

How much time do you spend sitting in front of your computer staring at your charts on any given day? Chances are it’s at least an hour. And for some of you, it could be several hours every single day.

If you’re only studying the markets, this amount of screen time might be acceptable. After all, analysing how the market moves is an excellent way to develop your trading skills.

But if you’re spending several hours each day looking for trade setups, you’re likely making a huge mistake.

Here’s why…

If an opportunity doesn’t jump out at you within the first ten to fifteen minutes after sitting down, it probably isn’t worth the risk. Remember, the best trade setups are the most obvious.

Goal: Spend no more than hour each day analysing my charts for buying or selling opportunities. If nothing jumps out at me, do nothing until the next day.

There are many other ways in which you can achieve real results through process-oriented goal setting, but the three above would make for a great start in my opinion.

Stay on the Defensive

The best offence is a good defence.

For the sports fan out there, this is a statement you’ve no doubt heard countless times. But for the trader, this is a concept that should be practice every single day.

When setting your goals, it’s essential that you keep them defence-minded rather than offensive-minded. Otherwise, you’re going to find yourself chasing trades to make the gains necessary to achieve the goals you’ve set.

Here’s an example.

Let’s say you have a goal to make 5% each month. But with only four days left in the month, you’ve only managed to squeeze out a 3% profit.

In any other profession, you’d just put in the extra effort to bridge the gap and achieve your goal. But as a Forex trader, trying harder can have devastating consequences.

So what’s the solution, you ask?

Forget about the profits, at least until you develop enough self-discipline to know when to back off.

But wait, isn’t making money what trading is all about?

Not according to my book. I want to be right every time… Once you right, pips and profits will follow.

Protecting the trading capital you have is what it’s all about – that is always your number one job as a trader; making money comes second.

After all, if you run out of capital, you’re out of business.

It’s no secret that those who enter the Forex market looking to make a quick buck eventually go bust. It’s one of the reasons the failure rate for retail traders is so high.

The very allure of making money as a Forex trader becomes a single point of failure for many.

One way to stay defensive is to set goals that encourage protecting what you have rather than attempting to make more of it.

For example, one thing you can do is limit the number of trades you take each month. So one of your goals could be to take no more than ten setups within any given month. I’m confident that if more traders did this, we’d have a lot more success stories from the retail crowd.

But don’t take my word for it, try it for yourself.

At the start of the next month, strive to take half of the setups you took in the previous months. Or if you’re feeling adventurous, make it 25% of the trades you took last month. So if you placed 20 trades in the previous month, you’d only be able to put on 5 trades in the current month.

Regardless of what you choose, the idea is to focus on quality over quantity.

‘If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money’.

Although I would argue that we could have easily said 70 percent, especially if you’re trading from the daily time frame.

Here are a couple more ideas for you to consider:

  • Set drawdown limits for the month. Once reached you must halt trading until a new month begins.

  • Discover your risk tolerance and make it a point only to risk that amount on each trade. Whether it’s 1% or 3% of your account balance, the key is discipline and consistency.

These statements may seem odd at first glance. After all, a goal to not lose money isn’t very inspiring. But then it isn’t about being inspired; it’s about discipline, patience and protecting the money in your account.

It’s completely acceptable to have a trading goal that states, “I must stop trading for the month if I lose more than 8% of my tradable equity”.

Remember, there is nothing conventional or typical about trading. It’s an endeavour that requires an almost contrarian thought process if you wish to succeed.

Make Your Goals Progressive

Let’s assume for a moment that you’re training for a marathon, and I’m your coach. You haven’t run in seven years, and even then it was more of a light jog around the neighbourhood than a training event for one of the most challenging races in existence.

Right, so for your first run I want you to finish the entire 26 miles. Chop, chop!

Say what??!! (Your responses as you turn and walk away).

And I wouldn’t be one bit surprised.

Having you run the entire length of a marathon for your first run in seven years would be crazy not to mention completely irresponsible as your coach. You could get seriously injured not to mention demoralised about the whole idea of running a marathon.

But this is what Forex traders do all the time. They want to skip the training process and jump right into making big money.

I received an email just the other day from someone who wanted to trade full time on less than £5,000. They said they only need £2,000 a month for living expenses and asked me if this was doable.

If you know me, you’re aware that I’m all about breaking barriers. I love a good challenge, and I always maintain the belief that anything is possible if you put your mind to it and follow it up with the right amount of effort.

But as I mentioned at the beginning of this post, trading is a different animal entirely.

With a £5,000 account and a £2,000 a month income requirement, this trader would need to make nearly 40% profit each and every month. And it would never get easier because of the need to pull those profits from the account to pay bills. And I won’t even mention the taxation on those profits.

So is this achievable?

No, it isn’t, at least not consistently. In fact, not only are the chances of pulling this off statistically insignificant, but the odds of this person blowing the entire £5,000 are far greater than being able to achieve such a feat.

Becoming a great trader is all about small victories, and I’m not talking about profitable trades. I’m referring to cutting your trading frequency in half or maybe breaking the habit of using the lower time frames.

Those are victories you can hang your hat on and it’s exactly what you should be striving to achieve, especially in the beginning.

Here are a few more ideas for you to think over:

  • Removing or at least reducing your dependency on indicators

  • Risking no more than you can afford to lose emotionally

  • Removing the word “hope” from your vocabulary and your mind

These are all things you can begin doing today. And while each one requires weeks and months to perfect, they will offer you the quick wins needed to increase your level of confidence while maintaining a defensive mindset.

Quick wins like the ones above will help build the momentum necessary to tackle financial goals later on.

Sometimes to achieve a goal (making money in this case) you have to home in on the various processes that produce the desired outcome rather than the outcome itself.

Said differently, process over profits.

Don't Be Afraid to Break the Rules, Eventually…

Contradictions abound in trading, and one such contradiction is that of setting specific financial goals. By this, I’m referring to a goal to make a return of 25% in

a given year or perhaps making 3% each month.

But here’s the key…

Any novice trader who attempts to set financial goals is doomed to failure. And while it’s possible to get lucky for a week or two or maybe even a month, the laws of the market will eventually catch up with you.

So here’s a simple rule to follow – if you aren’t yet consistently profitable, stay away from setting financial goals. It’s as simple as that.

As I mentioned above, it’s imperative that your goals are sequential. In the world of trading that involves (eventually) moving from process-oriented goals to some form of measurable goals, such as striving to make 20% in a calendar year.

When it comes to structuring these financial goals, it’s important to have both offensive and defensive goals. So just because you’re venturing into the world of monetary goal setting doesn’t mean you should forget where you came from.

In fact, the foundation you set in the beginning (defensive, process-oriented goals) are what enable you to keep the profits that you make as a trader.

Final Words...

Whether you’ve been trading for 5 years or 5 months, having clear trading goals is a must.

However, unlike most goals in life, your trading goals need to be process-oriented and not profit-oriented. This will help keep you from overtrading and risking too much.

As a general rule, goals in the Forex market should be defensive. In other words, they should focus on protecting the capital you have rather than attempting to gain additional money.

Let making money become a natural byproduct of the process you construct.

It’s okay to set goals for financial gain, but only once you have perfected the process. Moving into this later stage of goal setting too soon can be extremely disruptive to your trading career.

Which brings me to my last point – trading Forex or any other financial market is a career. It’s a business and not a hobby and therefore requires some form of goal setting, because what you measure grows.

Having trading goals that compliment a solid strategy will help you build confidence in your trading.

Your turn... What are your trading goals?