I recently offered a Three Minute Trading Coach video on the topic of setting effective trading goals. Now that we're wrapping up the challenging 2020 year, it's only natural to think about goals for the year to come. Here are several pitfalls that I'm observing among the traders I'm speaking with:
1) Exhaustion - A number of traders understandably just want this year to be over with. After the pandemic, crazy political gyrations, and shifts in market themes, many traders simply want a break. Indeed, taking time off at the end of the year and renewing energy and focus is itself a worthwhile goal. The risk, however, is that we so focus on the needs of here and now that we don't formulate powerful visions and goals for the coming year. Once we've rejuvenated, it's important to perform a thorough review of the year, identify clearly what you did well and what needs improvement, and then set specific plans for growth in 2021. Perhaps you want to expand the opportunities that you pursue in markets; perhaps you want to refine your network of colleagues to generate better discussions and ideas; perhaps you want to grow your risk-taking: defining specific goals that excite and scare you will provide you with energy to tackle the new year. The right goals and goal-setting *gives* energy.
2) Setting Narrow P/L Goals - While 2020 was a difficult year for many people personally, it in fact has been a profitable year for many traders, especially shorter-term traders that benefit from expanded volatility and the speculative flows that have entered the stock market. I'm working with quite a few traders who have had record years in 2020 and phenomenal monthly returns in November, as SMB recently shared. It is only competitive human nature to want to build upon such performance and define even more lofty performance goals. This can be a trap, however. We don't know what the market environment for 2021 will be. Could we have known in December, 2019 what 2020 would bring? If we increase our risk-taking in the wrong environment, we could expose ourselves to quite a setback. This is why setting process goals is more important than setting absolute P/L goals. (See the upcoming Three Minute Trading Coach video on setting process goals).
3) Setting Goals Without Setting Up Plans and Procedures - As the saying goes, a goal without a plan is merely a wish. I see many traders setting lofty goals--and then providing no detail about how, specifically, they will pursue those goals. Here's an important principle: if you are really serious about your goals, you are doing something *every day* to pursue those goals. If our goals aren't alive daily, then they are nothing more than good intentions. If your goals are worth pursuing, they should be alive and active every single day. That is true for your personal goals just as much as your trading goals. Many traders are great at setting goals and not so great and keeping those alive day to day. It's the daily work on goals that helps us internalize new attitudes, behaviors, and skills.
One more observation, this also based on my observation of the traders at SMB: I'm seeing huge growth in trading skills, experience, and profits when the right traders team up with one another. When traders with different skills and perspectives but similar trading styles share ideas, everyone makes everyone else better. Proof of that has been that some of these team efforts have led to joint trading books among the SMB traders, where the positions come from the independent thinking of two or more collaborating traders. When multiple smart people who do good research come up with the same idea independently, the odds of them all being wrong are pretty small. Those joint books have been phenomenally consistent and profitable. In 2021, you might ask the question: Who can I team up with to make them better and to make me better? Great things can happen when we approach trading as a team sport!
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