Setting Realistic Trading Goals

One of the issues that many beginning traders struggle with is the matter of setting trading goals. Perhaps someone has been attracted to trading by tales of fortunes to be made, and has unrealistic expectations. On the other hand, some traders have no idea just how much they should expect to make each day.

Any good trading course will allow the beginner to put together a trading plan which will set out what to look for, and when to enter and exit the market. Relating this to expected cash flows takes more application. A trading education must include detailed money management techniques, otherwise the trader is doomed to fail, and it is necessary to build on these concepts to see what is realistic.

There are two aspects to what makes a realistic goal. The first is an assessment of the trading strategy, including back testing, from which the expected drawdowns and returns can be determined. The second and major factor in determining realistic trading goals is the amount of capitalization available. Too many beginners think that they can double their money in a short time, and start trading with the expectation of replacing their salary income in a few months without ever considering the basic mathematics.

The primary goal when trading should be to preserve your trading capital. If you lose your account, then your trading career will come to a premature end. With good money management techniques, the account will build and the inevitable drawdowns will not be overwhelming. When setting realistic trading goals, it is important to consider the following points.

You may not make much profit on every day that you trade. The markets can sometimes be obstinate, and there is little that can be done about that.
Your primary trading goal should be to implement your trading plan flawlessly, and accept the results. The plan developed from a good trading course will be back tested to make money in the long run, but only if you stick with it.
If you decide that your trading plan needs to be modified, then you should not change it while actively trading, but later after full analysis and back testing.
Be prepared for the inevitable losing streaks, and don’t allow them to deviate you from your trading strategy.

With every trade you take, your trading plan should set you two exit points, one a target for a successful trade and the other to stop losses if the market turns against you. Depending on your plan, the ratio of these may be two or three to one, or even higher. From the back testing results you can see how many trades you should expect each day, and what percentage should be winners. The size of each trade will come from the calculation of how much of your account to risk – certainly no more than 5 or 3% — so a realistic assessment of how much your account should grow on average each day is just a matter working the figures.

The most important goal each day is to be able to say that you worked your trading plan, and each week you should review your account to satisfy yourself that the plan is giving you the average return that you expect.