Trading is usually a solitary pursuit, and it can be difficult to stay motivated when you are sitting in front of your computer, and the market is not cooperative. There is no boss looking over your shoulder, so when the going gets tough, it is easy to give up and blame the lack of success on outside factors.
The reality is that great trading is a grind over a long period of time. Successful traders work on cultivating grit and determination that will keep them going when the market goes through an inevitable down cycle.
One way to stay motivated is to set trading goals and to constantly challenge yourself. Competition can push you to do better, but in the stock market we seldom really know the truth about how well others are doing. There is also a multitude of styles and approaches, so it's better to set goals that match our expectations rather than compare ourselves to the liars on social media sites. The goal shouldn't be to beat someone else, the goal is to constantly improve.
Before we think about setting financial goals, there is another set of goals that can be of tremendous benefit in improving your trading-behavior goals.
Behavioral goals are the foundation for establishing regular habits that help us succeed. They provide the framework you need to do the work needed in order to achieve your financial goals. Behavior goals span a spectrum of activities. For example, dedicating a set number of hours each week to studying your trades and determined what worked and what didn't and why. You may want to spend so many hours on a regular basis studying charts, doing fundamental research, or looking for new ideas. Traders must constantly educate themselves. You can't just expect to sit down at the opening bell and automatically make money. You need to be prepared and have plans and ideas.
If you set behavior goals to do the important work, then you will be in a position to reap the benefits, but the problem is that behavior goals don't have clear and immediate rewards. There is some satisfaction to working as planned for a few hours to do research and develop strategy, but there is no immediate positive reinforcement which is why you also want to set some financial goals.
Setting financial goals for trading and investment is very difficult because there isn't necessarily any strong correlation between effort and results in the short term. Bad and good luck are your constant companions in the stock market, and they make goals look completely ridiculous at times. Why bother with goals when the market beast will do everything it can to frustrate us?
In addition, we must deal with a constantly shifting market environment. A strategy that works one day might be a complete flop the next. Setting goals that suddenly become unattainable due to a shift in a market can be dispiriting and cause you to give up rather than try harder.
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. Setting a goal is just dreaming if you are a passive investor that is not going to do anything other than finding a long-term position to buy and hold. Base your goal on capital that you are going to actively trade.
What time period are you going to use for your goals?
This will depend to a great degree on your trading style. If you are day-trading fast-moving small-caps, you might have a daily goal, but if your trades are for longer time periods, then your goals should be set for a similar period. For my style of trading, a daily goal is too short. I am generally focused on position trades that last weeks or months, but I augment them by trading in very short time frames as well. I tend to use a time period of at least a week, but even that can be short when trying to cultivate patience with a longer-term position that is still developing.
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 accomplish. Comparison to the indices is important in the money management business, but it is a suboptimal tool for traders that need to produce returns regardless of market action.
Generally, it is better 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% on an annualized basis, it isn't impossible. In good market conditions, it can be done, but it will require work. You will have to push yourself to hit those levels, and the likelihood is that you won't hit them quite often. The only way to do it is to be concentrated in volatile, fast-moving stocks, and that means that risk is elevated and the potential for big swings 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 because I almost always have some idle cash on hand. 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. Sometimes I will shoot to get my account to the next round number or to hit a new all-time high. The goal may be a random dollar amount, but it helps to keep me focused on doing what I need to in order to improve the bottom line.
The benefit of a financial goal is that it 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.
The purpose of a goal is to push yourself, but goals will also help you 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? Did more aggressive trading lead to poor risk management?
In all the years I've been trading, my most consistent challenge is to push myself to trade bigger and more aggressively. Good trading is not easily scalable as a host of emotions and other issues come into play. To produce improved results, you will have to exit your comfort zone and try some new things. You have to constantly challenge yourself to do better.
Trading can be extremely frustrating at times because our hard work and effort will sometimes produce losses. No matter how hard we try, we can't control the ultimate outcomes. What we can control are our preparation and hard work. Ultimately those things will pay off, and having good goals will help to keep you striving for more.