Just like goals in life, trading goals are a double-edged sword.
As a beginner starting out, I’ve been advised to set goals relating to monthly profits, as well as those related to performance measures. This profit-goal approach was championed by the late Dr Ari Kiev, one of the world’s best known trading coaches, who worked with Steven – art collector/billionaire/hedge fund king – Cohen. Dr Kiev rationalised that goals generate creative tension, forcing traders to ’seek’ opportunities rather than wait for them.
Seeking opportunities – what does that mean?
As a mechanical trader, I’m trained to run my scans, and place my trades according to the results shown. Simple in theory, right? So where does ’seeking opportunities’ come into it? Should I look outside of the market to achieve this goal? Or does this ‘force’ a trade? What happens when one forces a trade? Do you see things that aren’t really there?
Support and resistance levels become more favourable, the probability of success higher, and the ROI, previously unattractive, now seems acceptable.
I know that with my life goals, whenever I’ve set a profit/end goal (eg earn $X by December), I’ll feel frustrated if I’m not reaching it, and become more desperate as the deadline draws near.
He argues that goal setting improves performance in general, but that performance goals are more effective than result-orientated goals. An example of a performance goal:
“I will exit the trade if the stock in question drops more than 3ATR in one day.”
In stark contrast, an example of a results orientated goal is:
“I will earn an average of $4000 every month for 2010.”
Dr Steenbarger believes that focusing on performance goals often results in self-sabotage, as traders evaluate their trading performance whilst engaged in trading – this is no different to writers experiencing writing blocks when critiquing and writing simultaneously. He further adds in his article “Behavioral Patterns That Sabotage Traders – Part One” that most trading problems are varieties of performance anxiety, with this excessive scrutiny interfering with the performance rather than complementing it.
He suggests, for beginners such as myself, that “goal setting that reflects proper mechanics and tactics such as risk-management goals” is a better option with a greater probability of success.
This seems to make sense – if you focus on the basics – the fundamentals – then the profits should flow from, well, correct technique.
So this is what I’m going to do:
1. Re-evaluate my trading plan to make sure I’m focusing on performance related goals
2. Add these to my daily routine
3. Let you know what happens 
What are your thoughts on these seemingly contrasting methods?
Do you employ result-orientated or performance-related goals? Or both?
This entry was posted on Saturday, April 17th, 2010 at 4:03 am and is filed under Trading Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.