Trading Plan Step 2 - Set Some Goals

Trading Plan Step 2 – Set Some Goals

This step is about actually taking some time to think about what you want to achieve in the market. I think it’s fairly critical. How on earth are you going to decide what you are going to do without having a goal in mind? That would be like getting in the car to go on holiday, without a destination. You would find yourself driving aimlessly. Don’t do it. Don’t trade aimlessly. Precision in your plan is as important as precision in your entry and exit signals. Set goals. Make them realistic and, as I have said before, ‘making money’ is not a goal. It’s a given. If you’re not doing this to make money, go play golf.

Question 1 – What are your trading goals?

This is often confused with your financial goals, as in, how much money you want to make. Trading goals are different in that they concern your development as a trader. Your trading goals should provide you with something tangible to work towards, a way to track your progress, and motivation when you are facing challenges. If you set appropriate trading goals, your financial goals will come that much more easily. Once you have defined your goals, then decide how you will reward yourself once you achieve them.

My yearly/monthly/weekly trading goal is... a lot of people get stuck in this area so I have provided some examples below.
My weekly trading goal is to stick to my plan and be disciplined.
My monthly trading goal is to review my performance more regularly in order to spot any problems as they occur and make the necessary adjustments.
My monthly trading goal is to strictly adhere to my new stop loss strategy, in order to test its effectiveness.
My yearly trading goal is to develop my ‘edge’ by seeking further coaching from experienced traders, refining my trading plan and refining my strategies to ensure they remain tradable and market sensitive.

If I achieve these goals, regardless of the financial outcome, I will reward myself by...

Question 2 - How much money are you aiming to make?

Many new traders never ask themselves this question before they begin trading, let alone answer it. We all want to make money but the response ‘as much as possible’ is not a sufficient answer to this question. This comes back to your expectations. You need to know what it is you are chasing after before you go chasing after it. Be realistic. Don’t expect that you are going to turn $10,000 into $1 million overnight. The average return for the ASX over the past 30 years is about 9.5%. Your goal might be to match that return (although you could get that result simply by sticking your money in a low-cost index fund) or to better it by a certain percentage, i.e., ASX annual return (9.5%) plus 5%.

I will aim to return x% in a 12-month period
I will aim to return x% each month
I will aim to return x% each week
If I achieve my goals, it will provide me with a yearly, monthly, weekly income of x.
If I achieve my goals, I will reward myself financially by...

Set Some Goals but don't forget to reward yourselves guys. You can't take it with you and trading and investing can be hard.

Next - What Will You Trade and Over What Timeframe?

Missed the previous article? You can read Trading Plan: Step 1 here. Chris Conway has been working in the financial services industry for more than 10 years, primarily as an equity analyst. He is passionate about both fundamental and technical analysis, believing that a combination of the two yields the best performance returns. A regular market commentator, Chris appears frequently on Ausbiz and is regularly quoted in The Financial Review, The Age and Sydney Morning Herald, Reuters and The Australian. With his rules-based approach to markets and passion for technical analysis, Chris looks after the Technical Trades section of the Marcus Today Newsletter.