I forbid any trader I am working with to set this type of trading goal: “I plan to make xxx dollars per month.” This is a common goal that almost every trader has made at one time or another in their trading careers. So why should you avoid this goal like the plague?
First, if you have a set dollar amount to make per day, week or month, you will more than likely execute trades you should not take because you are trying to hit your dollar amount. Rarely does pushing trades like this actually get you to your goal. Most of the time you will end up on the losing end of these trades.
Second, and more importantly, setting a dollar goal places a limit on your potential gains. What usually happens when we hit a goal?
We relax. Feeling a sense of accomplishment, the natural tenancy is to pat yourself on the back, work less and take a little mini-vacation. How many times have you hear a day trader say he hit his daily goal and is taking the rest of the day off? I’ve seen it too many times.
This trader, once hitting his daily goal (also applies to weekly or monthly goals) effectively places a limit on what he can make.
So why do we set these types of goals? Michael Jordan equated limits with fear:
Over the years dozens of traders have told me they set goals/limits because they do not want to lose their hard earned gains. They fear they will give it back. This is a psychological flaw, and the sad thing is they are actually proud of themselves for creating this type of rule.
They are TRADING SCARED, and as Jordan would say, this fear is an illusion.
What if Michael Jordan had set limits on himself? The Chicago Bulls would not have won 6 championships, he would not be the greatest of all-time and would not be the first billionaire NBA player to own a franchise.
Rather than set a dollar related trading goal, set process related goals. For instance, every quarter I grade all of my trades A to F. Win or lose, my goal is always to have straight A’s. Even if a trade was a loss, I can earn an A if the setup was good and I followed my risk and trade management rules.
If you follow a process oriented approach, apply your methodology and never place limits on yourself, in time you will achieve more than you ever dreamed. The 100 Quotes To Put Into Action and Change Your Life Series:
Quote 1: Nehru on Caution as Risk
Quote 2: Bruce Lee on Creating Opportunity
Quote 3: Machiavelli On Risk Management
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Hey Paul. I completely agree on not setting dollar amounts as targets. You can only take out what the market offers to you, which is not always as much as you want but is always only as much as is available.
And as you say, why limit yourself?
Keep these quotes coming.
Thanks Andy. Will do!
Spot on Paul.
Focusing on the strategy eliminates emotion. Cover up the PnL helps too.
Let winners run, cut losers short and trade well.
Thanks for your guidance,