Setting Your Trading and Investing Goals
Author: Sam McNeill, November 2009
“Is there a particularly good way to set your trading and investment goals?” For trading and indeed for all areas of your life, there are two crucial elements in goal setting and attainment. First the perceived difficulty of the goal and secondly how specifically you state the goal. These two elements will play a large part in determining whether you will achieve the goal.
The more difficult a goal is to achieve and the more specific the goal is, the more likely you are to raise your performance level to achieve the goal. Now, this doesn't mean that you will automatically achieve the goal because it is difficult and specific, it means that with these two elements in place you are more likely to produce high performance which in turn will produce the best overall results.
Let’s look at a trading example. Let’s say our trading goal is to earn $50,000 next year from our trading activity. That's good but $51,600 will likely create better performance because the brain perceives it as more specific.
A lot of people think you should set easy goals. Not so. The best goals are difficult goals that are specific. Goals should be difficult and specific. So if you believe that your trading goal of $51,600 is easily achievable then raise it to a level that you believe will be more challenging, perhaps $72,400.
And people are more likely to perform well when the goal is seen as believable based upon their knowledge, their training, and their skills. When people know it CAN happen because they CAN make it happen, performance increases. So don’t set a completely unrealistic goal.
So that is the setting of your trading goal. What about along the way...on the journey to achieving the goal? You will be most committed to achieving a goal when you believe that achieving the goal is important. Also when you can see that progress is being made towards achieving the goal, you get the best results.
Seeing progress in share trading can be from something as straight forward as a running tally of your earnings year to date. You want to earn $72,400 from your trading this year. You see yourself at $38,100 in July and you know you are well on your way based upon simple arithmetic.
Most people who start trading shares or investing in shares do not have goals. When asked about what their trading goals are, they don't know and they don't worry about it. The most common response is “to make some money”. This is neither specific nor difficult nor does it have a big “Why is this goal important” nor is it measurable.
Think about your trading goals. Set yourself some specific, difficult and measurable trading goals and understand why you want to achieve them. Then start measuring your progress.
In his excellent text book “The Psychology of Persuasion”, Kevin Hogan talks about "the least acceptable result". What is your LEAST ACCEPTABLE RESULT from your trading? Think about this very carefully because this is the true goal that most people WILL achieve from any activity. You must move your Least Acceptable Result up to the level of your goal.
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