Sunday, October 12, 2014

How Goal Setting Helps Performance

A while ago, I wrote about what works in goal setting, according to the research of Locke and Latham.  One of their more interesting findings is that there is a positive, linear relationship between goal specificity and difficulty and performance.  When goals are specific, they direct and energize behavior far more effectively than when they are vague.  Difficult, challenging goals inspire greater efforts--and hence greater attainment--than easy goals.  If we think of goals as representing visions of the future, it is the most concrete and stirring vision that will bring out the best in us.

Key to the achievement of goals, according to the researchers, is self-efficacy.  People are much more likely to buy into and pursue goals if they believe themselves to be competent to reach those goals.  This is why the best goals embrace our strengths:  they represent ways in which we can leverage the best of who we are.  

Sometimes, people have gone through so many setbacks that they lack the sense of self-efficacy.  They come to believe that they can never reach their goals.  In that case, setting distant, difficult goals will not be helpful; the focus has to be on achieving small wins.  A series of small goals that are achieved provides multiple experiences of efficacy.  When you win, win, and win--even with relatively small goals--the boost to self-efficacy can inspire larger goals, which energize even further.  It may seem too daunting to lose 30 pounds for a heavy person, for example.  By focusing on losing one pound per week by eating smarter, it is much easier to create experiences of goal achievement, which then fuel the larger goal.

Where traders often fall short is not in goal setting, but in the feedback process following the pursuit of goals.  If a goal is not reached, something went wrong.  It is important to figure that out and make corrective efforts to pursue the goal in a new way.  Goal setting with feedback provides deliberate practice, because the feedback hones our efforts to reach goals.  It is very common in my experience that, when traders keep a journal, they write about their problems, but do not take the next steps of translating problems into challenging, specific goals.  Even when they do outline such goals, it is rare that the goals are revisited with concrete feedback that is used to guide future efforts.

Too much of life occurs in auto-pilot mode.  We take life--and markets--day to day, without an overarching plan and with no deadlines.  We act as if experience itself will teach us all we need to know, when it is guided experience--experience informed by goals and feedback--that gets us where we want to go.  One of the most important functions of a trading journal is as a chronicle of our goals, feedback, learning, and achievement.  We deliver our best efforts when we're on the path to becoming our very best.

Further Reading:  Setting the Right Goals