The Tragic Flaw in Setting Trading Goals

Articles on Trader Psychology by Rande Howell, Trader Psychologist




It is the end of the year, so it’s time to evaluate and reflect on your progress as a trader.  How have you performed in regards to your goals for the past year?  Have you achieved what you set out to accomplish?  Most traders I meet set goals, but never achieve those goals – no matter how hard they try to push themselves.  It’s like there is something that keeps them from seeing what is stopping them from achieving what they know is possible.  But what is it that stops them? 

     If this is true about you, welcome to the club of seriously-trying traders who can’t achieve their goals, no matter how hard they try.  If you are not reaching your trading goals and you know you could be, maybe there is something wrong with the way you understand goals and their application to trading.

     This is a common problem for people who have achieved success in other pursuits, but success in trading stays just out of reach.  Just because you have been a serious goal setter and achiever in your life before trading does not mean that your concept of goal setting for trading will also be effective.  Trading success requires a very different psychological orientation that mystifies people who have experienced success in other fields.

Common Success Thinking Comes Face to Face With the World of Trading

      Everybody is supposed to set goals for their trading, right?  How else do you grow as a trader if you do not draw a line in the sand and declare, “I am going to achieve this goal!”  Goals give you a direction for achievement and give you a sense of striving that motivates you to stay on top of things.  In pursuit of success, traders set daily goals, monthly goals, and yearly goals.  They monitor their P&L closely to measure themselves as they strive toward their goals in trading.  What could be wrong with this due diligence?

      Yet, the very goals that traders set for themselves often become the noose from which they hang themselves.  As an act of review, study your trading goals and ask this question:  Did you achieve your goals – the ones that are really important to you?  Did you come anywhere near your profitability goals or your net income goals?  How about your daily or monthly income goals?  The answer for the vast majority of traders is NO.  In fact, most traders stay stagnant in their pursuit of success in trading, or they bleed precious capital.  Their failure to reach their goals may pay their brokers well, but not themselves.

      Then, steadfastly, they re-declare their goals for the coming year and hope they find the special knowledge that separates them from what they know as possible in their trading.  They become more resolved to make progress and push even harder – only to find at year’s end that they are further than ever from achieving their trading goals.

      Traders live in this pattern for years at a time.  They want success, but they stay stuck in the pattern of staying stuck in unproductive trading – no matter how much they know about trading - no matter how much they have invested in reading about trader psychology, NLP, hypnosis, tapping, positive thinking, affirmations, visualizations of success, or the law of attraction.  Why don’t these help?

Confusing Outcome Goals with Performance Goals

      Most traders are good at setting external goals (profits, income, win percent, etc.), but never ask what psychological changes need to be in place in their core beliefs in order for them to achieve their goals.  They simply assume that their psychology of winning is fine and look elsewhere.  Rather, they do not ask the harder question: What is it about them that needs to change to achieve their outcome goals?  They never see themselves as the weak link in achieving their desired goals.  This is the tragic flaw that keeps traders (who intellectually know how to trade) from applying that knowledge under the pressure of risking capital.

    They are looking for “special knowledge” or a quick fix that will solve their problems.  They believe that with that solution, they can get back to achieving the goals they have set for themselves.  What they are neglecting is the difference between Outcome Goals and Performance Goals.  What is the difference?

     Outcome goals are objective and measurable results that you want to see happen.  An example of an Outcome goal would be:  I will make $250,000 in net income in the year 2015. Or, my return on investment will be 4% per month for fiscal year 2015.  Clearly these goals define a target to hit.  A good planner will also lay out a strategy for achieving these goals.  A common one is:  I will follow the rules of my trading plan with each trade that I take.  I will take no trades outside of my trading plan.

     The trader has an objective goal that he has set and has adopted strategic goals that will allow him to achieve his Outcome Goal.  Now all the trader has to do is rigorously attend to his/her plan and he/she is off to the land of milk and honey, right?

     Wrong.  Like most traders, our frustrated trader gets sucked into the heat of trading in the moment and the trading plan rules fly out the window.  And the trader keeps doing the same counter-productive thing over and over again that he swears he will not do.  Of course the trader then tries to apply more willpower or other techniques to solve the problem, but IN THE HEAT OF PERFORMANCE HE STILL REVERTS BACK TO SELF-SABOTAGING BEHAVIORS.

     All those external Outcome Goals are laid to waste because of the mind he is bringing into the moment of performance.  Outcome Goals are really just attempts to control the outcome of trades over time.  And you are trying to control something (outcome) that cannot be controlled in trading.  No matter how right you are in trading, you can still be wrong a good bit of the time.  There simply is no certainty.  Yet, you set up your Outcome Goals to attempt to predict and control outcome where only probability exists.

     The missing question is:  Who do I need to become so that I bring consistent effective performance into the moment of trading?  This is the question that bridges Outcome Goals with Performance Goals.

Performance Goals Are Not About Outcome –

They Are About What Mind You Bring into the Moment of Performance

     It just so happens in trading that the mind that you bring into the moment of performance is the missing edge you are seeking to achieve your Outcome Goals.  And it is the one that keeps eluding you because you do not want to hear that you have to intentionally disrupt and change the comfort zone in which you are invested for self-preservation.

      An example of Outcome and Performance Goals:  Several years ago I was watching an Olympic hurdling event.  There was one particular American that all the broadcasters were talking about.  Listening to them, he was God’s gift to hurdling and was going to win by a mile, win gold, and set a world’s record.  They promoted him as an athlete who “could not lose”.

      The day of his main competitive event arrived.  All the hurdlers lined up.  Tension was in the air.  The start gun fired.  The racers surged out of their blocks.  For a moment all the athletes were competitive, then the American seemed to become a blur of light and he left all the others in the dust.

     As he raced, all the announcers were beside themselves.  They were tossing accolades at him as he raced.  The certainty of their convictions was being proved out.  He was “the best”.  It was “so predictable”.  And he won by a wide margin, getting gold in the process.

     Then, after the race, as the athlete was still getting his breath back, the announcers crowded around him, sticking microphones in his sweating face.  They asked him triumphantly, “What did it feel like to know you were going to win?  What were you thinking when you knew you were going to win gold?  These questions just kept coming and coming.

     Then, with an inquisitive look on his face, the athlete inquired, “You want to know what I was thinking while I was competing?”

     The euphoric announcers relied, “Yes, yes, what were you thinking?  The world wants to know.  Everybody wants to feel the triumph as you experienced it.”

      “You really want to know what I was thinking”, the athlete inquired again, almost incredulously?  “Okay, I’ll tell you. “One, two, three, four.  One, two, three, four.  That’s all”

     “No, no,” the reporters countered; “We want to know what you were thinking when you knew you had achieved your dreams”.

     “Well, that’s what I was thinking while I competed – just one, two, three, four”, came the response.

     No doubt the mnemonic of “1,2,3,4” meant something to both athlete and track coach.  It represented the coordinated activities of behavior, brain, emotion, and mind that had been cultivated over many years of training; so that by focusing on the mnemonic, the athlete was able to trigger muscle memory at a time when thinking was not that important.  And no doubt that a sports psychologist and the athlete had worked with that same mnemonic to maintain a peak performance mind during the moment of execution.

     The athlete’s mind was not in the act of anticipating the future (like the reporters assumed it was) nor was it in the past, thinking about all the work he had gone through to get to this threshold moment.  No, the athlete’s mind was in the moment, focused on the one thing that he could control – the mind he brought to the performance of execution (1,2,3,4).     

     Later, as the gold medal was placed around his neck and he took a victory lap around the stadium, it was clear he was euphoric.  He was basking in the afterglow of this performance.  (This is what the reporters wanted him to say he was experiencing while he was in the act of competing.)  But he was too accomplished an athlete to fall for that trap and he was far too well coached to let that happen.

     Interviewed afterward, he talked about the goals that he and his team has set for him.  These are the Outcome Goals that gave direction to his growth as an athlete.  To achieve those goals, he and his coaching staff also set Performance Goals.  Those goals were about what mind (the beliefs that shaped his perception) he was going to bring into the moment of performance and execution within that performance.  It was the only outcome he could really control.  And it was also what gave him the edge in his development as an athlete. 

      Pride, fear, euphoria, over-confidence, self-deception, or self-doubt had no place in this peak performance mind. The level of his performance was the measure of his mind.  In the same way, your trading account is the measure of the mind that you are bringing into the moment of performance in your trading.

Listening to Your Emotions and Learning From Them

     My hope is that you have a better understanding of Performance Goals now and how they relate to Outcome Goals.  When you listen to your Trading Account with this in mind, what does it tell you?  It will reveal to you the emotions and beliefs you project on the markets every day.

      In particular, your emotional response to winning and losing will reveal what your core beliefs are regarding your capacity to manage uncertainty effectively (or not).  This is the heart of performance.  The past is gone; the future has not arrived – what is available is this moment in the here and now.  And it is also the pathway to achieving your Outcome Goals.  Like the athlete described above, Performance Goals are about the changes you need to make in your emotional response to the challenges of uncertainty.  This is what you can control. 

     The illusion of controlling outcome ceased to be an option the moment you became a trader.  Managing emotional response to uncertainty and probability is the cornerstone that was rejected, but it now can be the new foundation to your success in trading.   The only question is:  Are you with the new program or are you still trying to force an old paradigm onto a world where it does not function?  Your trading account will tell you, if you are willing to listen.  Your future success or failure lies in the Performance Goals that keeps you in the Here and Now – this is the moment you can control. 

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