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Tuesday, October 03, 2006

Daily goals

I get numerous emails soliciting my input on daily (mostly monetary) goals. How do I feel about having a goal of $XXX/day? How much should one set as their monetary goal?

Personally, I am against daily monetary goals. People tend to make mistakes when they are trying to hit a certain number - they overtrade, they take bad set-ups, they don't follow their rules.

Instead, I think it is better to have goals such as the following:

1.) Don't make bad trades. This encompasses a lot, and you can tailor it to your specific trading. But in general it means follow your rules and trade only the best (highest quality) set-ups.

2.) Don't lose "stupid money". You cannot help but have a losing day every now and then, right? But, losing "stupid" money means you did "stupid" things - you didn't honor your stops, you didn't take profits at your target, you chased set-ups because you lost money early in the day. In other words, you violated rule #1.

3.) The last goal can be to make money. Not a specific dollar amount, but simply to make money. If you consistently follow and apply rules #1 and #2, this should come with time and experience.

Many people say they like having a goal and when they hit it they stop trading for the day - that way they don't overtrade. But again, if you are consistently following and applying rules #1 and #2, why stop trading? When opportunities exist, take them. It will help offset the lack of opportunities in the future.

But, if you are not following the rules, you should not be trading at all!

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6 comments:

Prospectus said...

I chased setups today. A legitimate loss, and I chased to make up for it, taking a mediocre setup and ended up breaking even on the chased trade. Discipline is really one of the keys, isn't it?

A question on rules: How specific are your rules? E.G. "Long--Only take a wide range (x points) first bar, followed by a hammer-like second bar, entry no earlier than 10:30 EST, etc."? More/less specific? I'd love to see some people's examples to help clarify my thinking. I have rules of "Stops only move one way", and "Stick to the timeframe", which to me means that a daytrade does not become a swing trade, a trade entered on a 30-min chart shouldn't be followed on a 5-min chart to look for early exits, etc. As far as rules governing setup choices, I'm a lot more "feel 'em" which isn't working out for me that well...

TradeR:R said...

Trader-X

Amen to the rules you posted.

exengineer - I have specific rules that apply to all types of set ups that I use. I keep them on a spreadsheet along with the date I decided to implement/change/stop using each rule. This way I can review how the addition/subtraction/change of each rule affected my trading.

I'm also in the process of capturing the rules for each set up I use... these work in tandem with the above mentioned rules.

This all may sound complex but it's not. I have found myself paring down rules more and more until I'm left with only the few esentials.

This is why I like the way Trader-X wrote it in 3 rules... well done.

TradeR:R

Michael said...

The other problem with stopping once your monetary goal is reached is that you may lose money the next day(s). So stopping once that goal is hit may not do much for you. In fact, it's nothing but cutting your winners short -- and we know that's not what good traders are supposed to do.

I have a monetary goal that I'd like to AVERAGE every day (1% of my equity) but it's just there to tell me if I'm on track or not. I don't stop trading once that number is hit b/c I may very well lose that same amount the next day.

Simply Options Trader said...

Trader-X,
Cant agree more with you. I think setting a monetary target daily is actually disastrous to the trading account. The pressure to hit the target make one loses their head. I read from somewhere (cant remember if it's a book from Alexander Elder)that says that learn to trade well & the money will come

Jeff said...

Excellent post....nice and simple and in 3 easy rules you cover all the ground that's needed.

And I'm in full agreement - hard to expect a number before things start to move. Too easy to force trades on range-bound days or quit too soon on a trend day.

Take what the market provides each day and add it up at the end of the month.

Zeke said...

Great post. Thank you guys for keeping me motivated, learning, and entertained.