Another year gone, how was your trading?

All traders need to constantly improve, from traders yet to make a profit right up to the 7 figure traders aspiring to achieve more.

New Year is a perfect time to revamp, refresh and revitalise your trading. Do you have a trading plan? If not now’s a perfect time to write one. If you already have one, now’s a good take to make small adjustments and set goals for 2011.

So how do you set goals? Lets use a hypothetical trader as an example.

Albert has been trading for 6 months, he has had some good success with his trades but has always given back his gains. He understands the market, knows how to read charts and indicators, has some great set-ups and appreciates money management and trading psychology. He is determined to make it as a trader but still feels despair and frustration at times because he is not achieving what he believes he should.

What goals might suit him? How does he start to frame his goals? Simply saying I want to be a successful trader won’t cut it, he needs to be more specific than that and break up his goals up into long, medium and short term.

Example:

ALBERTS TRADING GOALS

Long term 3-5 years

“I want to enjoying a large income from trading”

or even better be specific…..

“I want to be making over $450,000 per year from my trading”

This long term goal can be as high as you want, although be realistic. Setting it at billions for example will only make your mind doubt that it can be reached. Set it at a level you know can be reached.

Medium Term 1-2 years

Now you need to drill down a bit. If you want to enjoy a large income from trading you have a few goals to hit first. A good medium term goal might be to have 6 months of profitability or make over $30,000 in a year. This starts to become achievable and bring the longer term goal into reach, but you still need to drill down further to set short term goals.

These will be slightly different as not only will you create goals based on the outcome but more importantly you will create goals based on the PROCESS.

What do I mean by that, well it’s all well and good saying I want to make $x per month but without laying out how you will achieve that and what you need to do to achieve that, your mind has no idea how to get there. Ok so if you were in the window washing business it might be clear that you need to wash more windows or charge more money. But we are in the business of trading, we need to determine exactly how we are going to get where we want to be in 3-5 years time. We cannot actually control the outcome, but we can control the process.

I.E. I do not know that the next trade will be profitable, but if I use correct money, execution and trade management my edge will have an overall positive expectancy.

So lets get back on track and drill down even further:

Short term

I think these are the most important, because they give you quick feedback and are goals you can achieve almost immediately. Every short term goal you hit brings you one step closer to that long term goal and that builds confidence and feels good.

Sticking with our hypotheical trader, what short term goals might he set:

Rituals

  • I will arrive at my desk at least 90minutes before the open, review the overnight session and read any key news.
  • I will not spend more than 10 minutes replying to emails, or browsing non trading related sites
  • If I trade from home I will make sure the family know I am not to be disturbed
  • My desk and office will be clean and tidy before each trading day
  • Any non trading related paperwork will be kept away from view and not dealt with until after the market has closed

Wellbeing

  • I will make sure I have slept well
  • I will jog/walk/workout each day before the open/after the close
  • I will eat sensibly and not drink excessively during the week

Discipline

  • My maximum trading size will be 6 contracts
  • My maximum daily loss will be $500
  • I will not take more that 5 trades per day unless the average true range is greater than 10

Trading skill

  • I will always try to buy at the bid sell at the offer first before hitting the market
  • I will extend my first scale out targets by 2 ticks
  • I will always trail 1 contract
  • My setups are graded into A, B and C. I will only take A’s and B’s with full size. C’s are to be traded at half size.

Research

  • I will look for new setups each week
  • I will ensure my stops and targets are aligned with the current market volatility
  • I will expand my trading into another market

Record keeping

  • I will keep an extensive trading journal outlining: Trade entry and exit, trade setup, market type, time, emotional barometer
  • I will then review my journal at the end of the week and create a summary
  • On a monthly basis I will adjust my trading plan if needed.

Psychology

  • If I make a mistake I will NOT beat myself up about it nor think that I’ve made one mistake it’s ok to make more
  • I will visualise market scenarios and my response to them every day.
  • I will see myself reaching my long term goal every night before I go to bed.
  • I will make sure I have other hobbies/interests outside of trading to keep a life balance

These are just examples of what our trader might do, they must be relative to him. The key thing is focusing on the process and outlining how he will perform, not what the outcome will be. Notice how all of the short term goals are achievable and take away the pressure that a monetary based goal brings. Focus on doing it right and the PnL will follow. Your short term goals can always be adjusted to suit as your trading progresses.

Trading is a very personal thing, I like to set my goals for 2011 before Christmas and the New Year so I know I am mentally prepared and I can use the occasional quiet spell to reflect on what next year will bring and what I need to do to get where I want to be as a trader.

Have a great Christmas and New Year, enjoy your time with family and friends. Relax and recharge your batteries, 2011 will be our best trading year yet.