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Essential Element of Consistent Profitability

One aspect of trading that doesn’t receive the attention it should is goal setting. In most of the classes offered at Online Trading Academy, one question found in most of the curriculum for students to contemplate is “Why do you want to trade?” This query is meant to uncover the “root motivation” behind wanting to pursue trading as career. If we delve a little deeper into this line of questioning, we also have to ask if the student has clearly defined benchmarks that will drive their actions.

Essential Element of Consistent ProfitabilityThe recent release of the movie Alice in Wonderland is what got me thinking about goal setting in trading. In particular, this exchange between the Cheshire Cat and Alice:

“Cheshire Puss, she began, rather timidly, as she did not know at all whether it would like the name: however, it only grinned a little wider. Come, it’s pleased so far, thought Alice, and she went on. Would you tell me please, which way I ought to go from here?

That depends a good deal on where you want to get to said the cat.

I don’t much care where, said Alice.

Then it doesn’t matter which way you go, said the cat.

… So long as I get somewhere, Alice added as an explanation.

Oh, your sure to do that, said the cat, if you only walk long enough.”

As we can surmise from this passage, wandering aimlessly through any undertaking can perhaps be fun, but not very productive.

I’m a huge believer in setting goals for all aspects of life. Goals are what motivate us to get up in the morning when we’d rather sleep in. Goals are what motivate us to devise a plan and maintain discipline. Goals are what will drive you to take action.

An Essential Element of Consistent Profitability is like Dieting!

Dieting can be used to illustrate how a goal can drive actions. Suppose you set a goal of losing 10 lbs. by Labor Day of this year. In order to achieve this goal, you’ll have to lower your caloric intake, and exercise 20 minutes a day, three times a week. What will you do the next time you’re out to dinner and your husband or wife temps you with (one of your favorites) a big piece of chocolate cake? At this point, you have to ask yourself, “Will eating this piece of chocolate cake get me closer to achieving my weight loss goal?” Of course, the answer is no. If you’re truly committed to your goal, you will take a pass on the cake, and when Labor Day arrives, you’ll have the self-satisfaction of having attained your goal.

Translate this example into your trading life. You have a goal of increasing your account balance by X amount by December 31, 2010. You are going to do this by seeking out and executing low risk, high reward trades, based on a simple strategy of trends, supply and demand levels. This will be done on an intraday basis in the futures market. You’ll have daily trade, and loss limits, to contain risk. And just as your dieting counterpart, you will be confronted with countless situations that will test your resolve. The market will be slow, and the enticement of trading outside of your plan will be strong. The market will be running and the impulse to chase the market will sometimes be overwhelming. When you find yourself in these situations, take a step back and ask yourself, “Will making this trade move me closer to achieving my goal?”

Notice that in both examples, there is a timeline attached to the goal. This is critical as it brings a sense of urgency in the achievement of the aim.

Most new traders I meet usually have goals, and that’s a good start. However, these goals are often unrealistic and thus hard to achieve. There is nothing wrong with having lofty goals. However, if they’re unachievable, this will lead to frustration and discouragement. I would rather have students start with realistic goals that they can achieve, which in turn will raise their confidence. Once they begin hitting their targets, they can begin raising the bar in small increments.

When getting into specifics, ultimately, the main goal for all of us in the trading business is monetary. In that pursuit, other areas have to be measured. For example, setting good practice goals, like daily avoidance of trading mistakes, can assist in achieving the overarching monetary objective.

When it comes to daily financial goals, I have mixed feelings. I prefer weekly, rather than daily monetary goals because of the undue pressure placed on a trader when he sets out to make money day-to-day. A weekly target gives a trader a bit more leeway and allows him to be more patient while still shooting for a mark.

All in all, goals are a must if one is to succeed – period. Studies have been compiled suggesting that individuals who set, and write down these goals, are more likely to attain their personal, business, and financial goals than those that just say they want to be a good trader, or want to be successful without being detailed. Therefore, it makes sense to establish realistic trading benchmarks, write them down, attach a timeline to them, and diligently review the progress towards achieving them. Because that is what peak performers do, and that is whom you are competing with everyday.

Until next time, remember this essential element of consistent profitability and I hope all your weekly trading goals are fulfilled.