Setting your trading objective is one of the most important steps in developing a trade plan, yet is the one step that most new traders neglect. Purposefully thinking about your objective helps you clarify what you plan to achieve, how you plan to do it, and by when. Here’s how to get started.
First, decide what you want to accomplish in your trading by completing this sentence:
“I want to be a successful trader because…”
Second, honestly assess your strengths and weaknesses, both as a person and as a trader. Here’s some questions to consider in getting to know yourself as a trader.
- What is my motivation for trading, i.e., why do I want to trade?
- How much time can I give to trading?
- What is my level of knowledge and skill? Novice, intermediate, pro?
- What are my strengths and weaknesses and how do they apply to my trading?
- What is my attitude toward risk? (More on this in Risk Management)
Third, itemize your trading goals, being as specific as possible both in terms of profit and timeframe. Only by defining and quantifying your goals will you be able to measure if you’ve achieved them. Be sure to set a completion date for each goal, so that you are focused on its completion.
Identify detailed trading goals on a daily, weekly, monthly, six-monthly, annual, and lifetime basis. Although it might strike you as foolish to come up with daily trading goals, or pointless to try and settle on a lifetime trading objective, it is the thinking that goes into these goals that is important and ultimately beneficial. Here’s some questions to consider:
About My Trading Goals
- What will I be trading? (Stocks, bonds, options, futures?)
- How will I measure my goals?
- How will I achieve my goal(s)?
- What is my timeline to reach each goal?
- Is each goal SMART (Specific, Measurable, Attainable, Relevant, Time-bound)?
Example: My objective is to trade futures and to attain a gross income of $1,000 per week within two years after I begin trading.