We have seen in the past that trading is less about great insights and more about great discipline. If you are a serious trader, then you need discipline in trading and that can only come from setting clear cut trading goals. There really cannot be a template for trading goals as they need to be customised to your unique requirements. However, here is a fairly practical guide to setting your trading goals. Remember; never ever start trading with real money unless you have your trading rules clearly laid out.
Trading Goal 1: Never trade money you cannot afford to lose..
This may be actually stretching things a bit too far, but what it indicates is that when you trade you must be prepared to lose money. You do not have control over how the market will behave or how your trade will move. But, you surely have control over how much you can afford to lose. In trading, higher returns entails higher risks but just assuming higher risk does not assure you higher returns. It is this paradox that you need to understand before your start trading. Every trade must be seen in terms of the maximum loss that you are willing to bear and the maximum capital erosion you are willing to tolerate.
Trading Goal 2: Always set realistic trading goals..
Trading is not rocket science. When you set targets for trading you must always be realistic. Just because you earned 10% for two weeks in succession does not mean that you can earn 500% returns in the full year. The law of probability will catch up with you sooner rather than later. Your trading goals should be clearly defined in terms of your stop loss and your profit booking triggers. As a trader maintain a reasonable trade-off between your risk and your return. If you are targeting a stop loss of 1% then keep your profit at above 2.5% for the trade to be meaningful.
Trading Goal 3: Set goals in terms of your trading volumes..
This may be a little difficult as it is hard to predict how much volumes you may be required to do. The idea is to ensure that you do not over trade in an effort to make more profits. That is not a very smart thing to do. There must be a certain reasonable proportion between your profits earned and your costs in terms of brokerage and other statutory charges. While there are no hard and fast rules here, here is an example. If at the end of the quarter you realize that more than 25% of your gross profits are being accounted for by your costs, there is surely something wrong with the way you are trading.
Trading Goal 4: Keep a detailed documentation of your trades..
This is a very important trading goal as it helps you to take a dispassionate look at what trades worked and what trades did not work for you. That is an important input for your future trading strategy. A detailed documentation with comments is very important. This helps you identify trends that have made your trades successful and trends that have resulted in failed trades. It also helps you identify whether you have booked profits too soon or if you have triggered stop losses too late.
Trading Goal 5: Always stay on the side of momentum..
You cannot really be a good trader unless this is one of your principal trading goals. A trader, unlike an investor, does not try to second guess the market. For a trader, the trend is his friend and that is what determines the structure and nature of his trades. Once you understand the structure of the momentum, you can design trades accordingly. As a trader you are not looking at bargains but you are looking at how you can ride the trend. The biggest risk for a trader is to be caught in the wrong side of the trend.
Trading Goal 6: There is life beyond trading
This may appear to be slightly out of place, but equally necessary. It is essential to be passionate about your trading but do not become obsessed by trading. Get a life beyond your trading desk. Try to engage your mind with a good sport as well as a creative hobby. They can freshen up your mind and also give a proper perspective while trading. Spend time with your family. The purpose of trading is to make money in a disciplined way not to lose out on the basic emotional necessities. Try to spend quality time with the family over the weekends rather than worry about your trading performance. That can go a long way!
Trading goals constitute the broad Bible which guides your trading. It not only gives a perspective and context to your trading but also a constitution that will circumscribe your trading activity!
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