Trading is often a solitary pursuit. It can be difficult to keep pushing and stay motivated. There is no boss looking over your shoulder so when the going gets rough it's easy to just give up and go do something more enjoyable.
Successful traders work on cultivating grit and determination, but it isn't easy, especially when dealing with a market that seems to purposely find ways to frustrate us.
It can be helpful to work with other traders who encourage you to do your best, but one tool that can employ on your own is goal setting. Setting a specific financial goal for a given time frame is a great way to challenge yourself and look for ways to produce better results.
If you are a passive investor, goal setting isn't a very effective tool. The nature of passive investing is to try to benefit the best you can from the general tendency of stocks to go up over time. Passive investors ride the ups and downs and hope that their superior stock selections will produce market-beating results over time.
If you are an active trader who is constantly looking for shorter-term opportunities the psychology is completely different. Rather than just excuse poor returns because the market is poor, you have to challenge yourself to find ways to produce better returns. You have to look harder for good stocks, use different strategies, shift time frames and constantly look for some sort of edge.
A financial goal will motivate you to be innovative and persistent when the going gets tough. Without a goal it is very easy to tell yourself "this is just a bad market and I can't make money. I'm just wasting my time even trying."
Sometimes it is a good idea to walk away rather than struggle in a different environment but if you have a goal you want to reach you are less likely to give up as easily.
Setting a realistic goal requires a number of considerations:
How much capital are you going to dedicate to active trading to hit a specific goal?
It is likely you will have some longer-term investments that are not suitable for a goal-setting framework. You only want to use goal setting for capital that you are going to trade actively as that is the only way you will be able to hit a benchmark.
What time period are you going to use?
This will depend to a great degree on your trading style. If you are trading fast-moving microcaps you might have a daily goal. For my style I think a daily goal is too short. I tend to use a time period of at least a week but that often is too short for trades that I'm stalking over a longer period. A month may be a better time period for position trading and momentum investing.
How do you set the goal?
Big funds judge themselves on performance relative to a benchmark such as the S&P 500, but losing less than the indices isn't what most traders want to do.
You probably want to set a dollar or percentage goal. For example, a very aggressive trader might set a goal of $5,000 or 5% for the week on an account of $100,000 or so. While that is very aggressive, especially when you consider that it is over 250% an annualized basis, it isn't impossible.
You will really have to push yourself to hit those levels and the likelihood is that you won't hit it. The only way to do it is to be concentrated in high-beta, fast-moving stocks and that means that risk is elevated and the potential for volatility is high. You want to push yourself, but not go too far so that you start doing things you are not comfortable with. A reasonable goal for a week might be 2& or 3% while on a monthly basis you can strive for something over 5%.
I personally prefer to use a dollar goal rather than a percentage goal. It is actual dollars that are more meaningful to me and I find it more motivating to think in those terms rather than a more abstract percentage.
Evaluate your trading
The purpose of the goal is to push yourself, but you also want to learn from your efforts. What sort of mistakes did you make? What worked best and how can you replicate that in the future? How much did market conditions impact your results? What opportunities did you miss?
Trading requires a high degree of self-motivation. It is easy to be satisfied with some decent gains even when we could do much better. Set a goal and challenge yourself.