We all have a certain return we want to achieve from our trading for the year.
A good way to get started on securing that return is to set it as a goal. But setting a return goal on its own is not enough. To be successful, you need to focus on the process behind the goal.
It’s the actions you take in pursuit of your goals that are going to get you what you want. It is not enough just to set a goal and hope – we must also plan and take real steps to get there.
This is true in any field. If someone says they want to lose 10Kg, that goal is only as good as the processes behind it. How many times are they going to work out every week? How are they going to change their diet? What supplements are they going to take? What research do they need to do?
If they can answer those questions with clarity, then they have a good chance of succeeding. If not, then they are probably not going to lose as much weight as they would like.
The implementation plan is the key.
Three parts to implementation
Whether or not you achieve your goal depends on a combination of three things, along with your ability to keep mistakes small and infrequent.
- Your edge over the market (how much you can reasonably expect to make on average per trade)
- Your trading opportunity (number of trades you take)
- Your position sizing model (how much you risk on each trade)
So, you need to work out how many trades you are going to take, and how much you need to risk on each trade to achieve your desired return, given the quality of your trading system and your target.
For example, if you have a return goal of 100% for the year over 50 trades, and you know that on average you make five times your risk per trade with a 50% win rate, your implementation plan might look something like this.
- In the first 6 months of the year, risk 1.5% per trade on 20-25 trades (depending on the market) with a goal of 30-40% on my account.
- After that, you could look to take another 20-25 trades risking 2% and scaling heavily into your high conviction trades. This would allow you to potentially triple or quadruple your returns compared to the first half of the year. (Like Stanley Drukenmiller says in Market Wizards, it takes courage to be a pig and go for a big year)
Of course, you would then need to work out the specifics of a trading strategy and position-sizing model that fit these criteria. You should know exactly what will trigger a trade, and how much you are risking.
Note that there are as many ways I could have written this example as there are traders, and you need to work out an implementation plan specific to you and your edges.
Break it down into a daily process
Once you know how many trades you need to take, and how much you need to risk, start to define your daily activities.
How much time do you need to spend looking for trades, and what research do you need to do?
You might need to spend one hour a day looking for opportunities, and one hour reading research from analysts, and five hours a week working on improving your trading system.
Thus, if someone asks you about your goal for the year, you might say: it is to spend 2 hours a day trading and 5 hours a week researching. Just like a person trying to lose weight might say their goal is to go to the gym three times a week, do yoga two times a week, and eat vegetables at each meal.
The goal then serves as a benchmark
The return goal then serves as a benchmark to tell you if your processes are working.
In the above example, say you have taken the first 10 trades for the year, and you have made 5% when you should have made 15-20%. You may decide you need to re-evaluate your system, because you are not on track to meet your goal.
Perhaps the system is not working as it should, or your position-sizing model is not accurate enough. Or perhaps the market type is wrong for your system, and you need to research a new system for that market type.
Over to you
Firstly, if you have not done so already, spend some time coming up with the goal you want to achieve.
Next, it’s time to focus on the process behind the goal. What are the specific actions you need to take to get what you want?
As the year goes by, monitor your plan to see if it is working and make changes accordingly.
In doing this, you will have set yourself up for real success in achieving your targeted return.
About the Author
Guest post by Sam Eder of premium Forex signal Provider FX Renew.