Goal-Setting Links for Traders

For those just dropping by, this is the fifth post in a series. The previous four posts have been:

* Preparation and the Perception of Time

* Discovering Your Trading Patterns

* Previewing and Reviewing Your Trading

* Preparing to Win

Several of the posts above discussed learning loops as the essential component of performance development. We become better performers when we learn from previous efforts and use that learning to guide future efforts.

The glue holding together these learning loops is goals. Goal-setting is what differentiates the intentional, process-driven, performance-oriented trader from the trader on autopilot.

This post provides a good introduction to goal-setting. Setting effective goals is also the subject of Lesson 34 in the Daily Trading Coach book.

Traders commonly make several mistakes in setting goals:

* Too Distant - By setting goals at very long time frames only, they do not concretely guide day to day, week to week performance;

* Too Vague - Goals should be process-oriented and spell out clearly what, specifically, you will be doing in the future and how you will be doing it;

* Too Burdensome - Traders will tackle too many goals at once and give up on the whole effort when it becomes overwhelming;

* Too Unrealistic - Traders will set perfectionistic goals ("I will make money every day of the week") that they cannot control and that leave them feeling discouraged when not reached.

One component of goal-setting that is often ignored is rewards. We're more likely to sustain an activity when we find it intrinsically and/or extrinsically rewarding. Let's face it: hard effort in any performance domain--whether it's physical conditioning in sports or countless rehearsals in preparation for a stage play--is not always fun. Even the most dedicated performers have to push themselves to reach their peak performance: that pushing means they necessarily go beyond their comfort zones.

Rewards provide an incentive for those pushes. In trading firms, one important incentive is capital allocation: traders are allotted larger buying power when they produce positive results. Trading firms that are well managed also provide meaningful psychological rewards, in terms of peer recognition.

Independent traders coaching themselves generally structure their own rewards. Those can be as simple as special vacations paid for out of market winnings: shared rewards are often doubly rewarding. In my own trading, I allocate size based upon my results during the year: that creates a tangible incentive to build profits and refrain from overtrading.

Although I prefer process goals (goals that entail trading well) to outcome (P/L) goals, I do emphasize in my own trading the goal of being profitable each month. This helps me manage risk during the month and also provides a benchmark for success that can be a focus each day and week.

Open your trading journal: What is your goal for today's trading? For this week? How will you know that you've reached your goal? What, specifically, will you do to achieve your goal? These are the questions that bring learning loops together. If they're not in your journal, the odds are good they're not there in your head--or in your trading.

Preparation and Time Perception

Note: This is the fourth post in a series dealing with trading performance and self-coaching. Prior posts in the series were:

* Discovering Your Trading Patterns

* Previewing and Reviewing Your Trading

* Preparing to Win

One of the more interesting interviews I conducted for the Trading Performance book was with the heads of a school that trains pit crews on the NASCAR circuit. Talk about a performance discipline! Pit crews have to change tires, make needed repairs, and conduct routine maintenance on cars in a matter of seconds, or they will cost their drivers precious time in the run to the finish line.

An interesting observation from the training school was that they train pit crews to "go slow in order to go fast." Smooth operation is better than hurried activity, as the latter leads to mistakes. When tasks are trained to the point where they become automatic, crews can operate very efficiently and yet not in a frenzy. The preparation slows the perception of time, because crews feel in complete control of what they're doing.

As I observe in the book, markets "seem to move more slowly when we're prepared, when we know what to look for. If I am frantically searching for trade ideas as markets are moving, the markets will feel fast regardless of how much business we're doing at the time" (p. 165).

I have seen this consistently in my own trading and in work with traders: when we are not prepared for various market possibilities, we feel behind the market. Time seems to be moving quickly, and we become reactive, getting in and out of positions at the worst possible prices. When we are prepared, however, we're in a position to anticipate. Time slows down with the perception of control: our decisions become deliberate, not forced.

What are key price levels from the previous trading day? From pre-opening trade? From the opening range? How are we trading relative to those levels? What are the price targets we're likely to hit if those price levels hold? Where would we have to enter a trade to achieve a favorable risk/reward level for a trade to those targets?

Pit crews practice every possible scenario with their cars, from routine stops to major maintenance and repairs. Each move is choreographed; everyone knows their responsibilities. That is how trading can be.

Preparation slows perception of time, because it instills perceptions of control. Prepared traders are never frantic traders.

Discovering Your Trading Patterns

(Note: For those coming to this strand late, the first two posts in the series were about preparing to win and the preview/review process in trading).

When you preview the day ahead and review the day just traded, you are doing the same thing that you do with markets: you're looking for patterns. This time, however, you are looking for *your* patterns as a trader. Your pattern search is for the common threads that underlie your best trades and your worst.

We can think of learning loops as intentional processes that turn our best patterns--what we can call our "best practices"--into habit patterns. Those same loops can be used intentionally to disrupt our worst practices, so that they cannot activate themselves in habit-like fashion.

The challenge is that we can enact patterns of behavior without being consciously aware of those patterns. This happens in all spheres of life, from our moods (automatic negative thinking making us feel angry or depressed) to our relationships (misreading what another person is saying by taking it personally).

Many times, traders do not have multiple problems. They have a single pattern that appears in their trading multiple times. If they can isolate and change that pattern, the improvement in performance can be significant.

Even less recognized are our solution patterns. We enact patterns of positive behavior all the time and yet are not necessarily aware of what we're doing and how we're doing it. If we don't know our "best practices"--whether in work or relationships--we cannot harness those and make them more consistent parts of ourselves.

One way in which trading journals can be useful is in identifying the patterns that make up our best and worst practices. By cataloging our best and worst trades each day or week and then examining them to see what made them succeed or fail, we will begin to see patterns jump out at us over time. These may be patterns of market conditions and specific kinds of setups; they may also be personal patterns: how we prepared for the trade, how we executed it, our mindset at the time of trading, etc.

When keeping such a journal, the important thing is to track both what was happening in the market *and* what was going on with you at the time of your best and worst trading. After dozens of journal entries, you'll notice the same themes cropping up day over day: these are the ones that speak to your patterns.

Knowing your patterns does not guarantee that you will change those patterns, but it is the first step in the direction of change. You cannot work on yourself if you don't know what to work on. Acting as your own coach means knowing where your strengths and weaknesses lie, so that you can make the most of who you are, build the best within you, and minimize your weak areas.

Here are some posts that will aid your process of self-discovery:

Formatting Trading Journals for Success

When Coaching Works, and When It Fails

Key Steps Toward Becoming a Better Trader

Previewing and Reviewing Your Trading

The recent post described the importance of learning loops in cultivating trading expertise. I would go so far as to say that elite performers reach their status by becoming learning machines: performance becomes a stimulus for learning, and learning becomes a stimulus for performance. The loops ensure that learning becomes cumulative, not simply the same sets of lessons learned many times over.

Learning loops can be broken down into two components: preview and review. Previewing trading means setting plans at the start of the day, both with respect to markets and one's trading of those markets. The key question for previewing is, "What do I want to accomplish today?" You want to clearly identify what would make the day a success for you: what would constitute good trading of today's market. Previewing is both establishing intentions and goals: it is a forward-thinking process that guides one's behavior over the course of the trading day.

Reviewing means going through the trading day and evaluating one's own performance. Did you accomplish what you set out to do? If so, how did you achieve your goals and how might you bring that achievement to tomorrow's trade? If not, what interfered with your goals for good trading? How can you deal with those interferences effectively tomorrow? Reviewing also means reviewing markets: How did we trade? How well did you identify opportunity? Where were the good setups? What could you have done better?

Every day you preview, every day you review: the combination of the two keeps you in the self-coaching role. They also keep you on the path toward expertise and elite performance.

In Enhancing Trader Performance, I quote General George Patton: "Courage is fear holding on a minute longer."

Training, I note, provides that extra minute.

Day after day of previewing and reviewing creates the inner strength and confidence to move forward even under the most daunting conditions.

More:

Resilience and the Courage of Your Convictions

The Will to Prepare to Win

One of the challenges of trading is acting as both trader and coach: performing, but also working on improving performance. I consistently find that the time and energy traders spend on this self-coaching function is positively correlated with their career longevity. That makes sense from a performance standpoint: no athlete or performing artist would enjoy a long, successful career without practice and focused work on their skills.

In my book on Enhancing Trader Performance, I emphasize the concept of "learning loops". These are activities in which performance is followed by evaluation and goal setting, followed by further goal-focused performance. These loops are characteristic of expert performance; more properly, they drive expert performance:

"We often talk about expertise as if it's a quality that one possesses. One person is an expert, another is not. Such talk makes it sound as though expertise is an all-or-none thing. Research tells us, however, that expertise is a process--one that unfolds over a considerable period of time" (p. 9).

Coaching oneself most often fails because the trader's time and efforts are not structured in a way that supports the process of expertise. Instead of learning loops, there are learning oops! Mistakes are made and never become the concrete focus for directed efforts at improvement.

This is why we see among elite performers an intense competitive drive, where the focus of competition is against oneself. It is a passion not just for the game, but for the process of self-improvement. That is why a Michael Jordan or Tiger Woods will compete long beyond the time when they could comfortably retire financially. It's not about the money: it's about winning--and that's about becoming the best they can become.

Self-coaching begins with reflection:

* What am I doing right that is working for me?

* What am I doing wrong that is losing me money?

* What are my strongest areas of performance?

* Where am I weakest?

* How can I take more advantage of my strengths?

* How can I minimize my weaknesses?

* What can I do today that will improve on yesterday's performance?

* What can I carry over from yesterday to sustain good performance?

"The key is not the will to win... everybody has that. It is the will to prepare to win that is important," Coach Bob Knight once observed. It is that will that sustains learning loops and builds expertise.

More:

What Makes an Expert: Three Surprising Conclusions

Goal-Setting and Frustration in Trading

Note: Previous posts in this series are:

* How to Overcome Frustration in Trading

* The Well-Being Hypothesis: A Framework for Addressing Frustration in Trading

In the most recent post in this series, we saw that frustration generally only disrupts thought and behavior when it occurs against a backdrop of diminished well-being. If people don't feel fulfilled, happy, and satisfied with their lives, they're more prone to react--and overreact--to the normal frustrations of daily life.

What is well-being? A previous post outlined four pillars of positive psychological experience. That post concluded: "The wise trader structures his or her day to maximize experiences of well-being: that is what sustains motivation, concentration, and the ongoing learning needed to adapt to ever-changing markets."

This is an important principle: how we structure our trading determines the level of well-being we are likely to experience.

Consider the recent article that I linked about basketball superstar Kobe Bryant. At 31 years of age--and after 14 years in the NBA--he can no longer sustain his old feats of athleticism. Surely that would have to be a source of considerable frustration to such a competitor.

The article makes clear, however, that Kobe is not beset with frustration in the least. Rather, he has focused on developing new aspects of his game that compensate for his lost abilities. This positive focus is what sustains his well-being, balancing any frustrations that he encounters from game to game.

Check out the linkfest on goal-setting; it makes clear that goals cement learning and development in trading. When we have goals, we have tangible yardsticks for measuring our progress. Those yardsticks, when properly chosen, provide the basis for joy, satisfaction, and energy: they move us forward, even as we encounter day-to-day and trade-by-trade frustrations.

My experience is that the vast majority of traders do not set daily, weekly, and longer-term goals. Even fewer concretely track their progress toward those goals and make needed adjustments. In short, they are not pursuing their careers the way that a Kobe Bryant or Tiger Woods might.

This absence of goals and structured development not only prevents a trader from excelling: it robs the trader of potential positive experience. Every bodybuilder knows that specific goals--whether they be goals to lift particular weights or goals to improve the definition of certain parts of the body--are what sustain competitors through grueling training. Without the opportunity to achieve goals, physical training (like training in trading) is mere drudgery.

Few traders make the link between discipline problems and the absence of performance-oriented goals. You can do all the psychological exercises in the world, but if you're not structuring your development process to yield well-being, you'll miss out on the optimism, drive, and determination that propel elite performers.

Three Questions to Ask At the Start of the Trading Day

from Dr. Brett--
Here are three questions to ask at the start of the trading day:

1) Am I bringing baggage to the day's trade? Am I carrying over frustrations from losing money or missing opportunity? Am I feeling particular pressure to make winning trades? Am I locked into a view of markets because those views haven't been paying me?

2) Am I prepared? Have I identified significant price levels for the day? Have I gained a feel for how various markets have been trading overnight? Do I know if economic reports are scheduled for the day and what the expectations are?

3) What am I working on? Do I have goals for the day? What have been the mistakes I've been making that need to be corrected? What improvements have I made that I want to cement? What kinds of trades have been working best for me, and am I prepared to actively look for those?

The idea is to become a good self-observer: it's harder to get locked into negative patterns if you're standing apart from those patterns. It's also easier to enact your best trading patterns if you're fully aware of them. Just asking where your head is at when you're trading helps you interrupt patterns that hurt your trading.

Turning Goals Into Consistent Habit Patterns

from Dr. Brett-
My recent post took a look at setting effective trading goals. Properly formulated, these goals focus our development, bridging our real selves--who we are now--with our ideals. Setting goals, however, is easy compared with acting upon them over time. Many of us set well-meaning goals at the start of a year, only to forget our resolutions.

So how do we make goals actual tools for self-development? One answer that I came to in writing my new book is that goal setting must be a process of emotional commitment, not just an intellectual exercise. "The secret to goal setting," I note in the book, "is providing your goals with emotional force. If your goal is a want, you'll pursue it until the feeling of desire subsides. If your goal is a must-have, a burning need...it becomes an organizing principle, a life focus."

In Alcoholics Anonymous, the goal is sobriety. Members spend a great deal of time sharing their stories of lost relationships, lost jobs, and lost health. They openly talk about the horrors of their relapses. Why? Because this keeps them emotionally connected to their goal. AA focuses on the reasons for the goal; every single meeting members remind themselves that they are alcoholics, powerless against alcohol. They can only find sobriety in their connectedness to others and in their relationship with a Higher Power. Next to that, everything else seems inconsequential.

An effective trading journal is like an AA meeting. It is an emotional communication that reminds the trader why he or she is seeking particular goals. The vision of success, the horrors of going through massive drawdowns, the feelings of disgust at missing opportunities due to a lack of nerve or discipline: these keep us connected to our goals.

Once you're emotionally connected to a goal--clearly seeing its necessity--discipline is not necessary. You will automatically gravitate to doing what you know you need to do. It's a bit like the procrastinator: when the assignment is due in several weeks, there's no urgency. When the assignment is due the next day--with one's bonus on the line--the drive to work kicks in with full force.

It is when the perception of "Reach your goal, or else!" arises, that we act decisively. Often it's the "or else"--the clear awareness of the consequences should we not fulfill our aims--that helps turn goals into consistent actions. The man who has had a heart attack may have struggled with his diet for years. Now, aware of his mortality, he has no problem following a heart-healthy regimen. His goal, under the pressure of necessity, becomes a habit pattern.

It helps to clearly visualize what would happen should we fail to meet our goals. What would happen to us? How would we feel about ourselves? Many a drive for greatness was sparked by the hatred of mediocrity. We will ourselves forward only when stasis becomes more uncomfortable than the efforts demanded by self development.

Trader Self-Development

from Dr. Brett-
Successful self-coaching requires an ongoing commitment to tracking and improving performance. Here are some posts that will help guide your self-development as a trader:

* How Can I Learn Trading?

* Coaching Yourself for Profitable Performance

* Self-Efficacy and Attaining Goals

* What Contributes to Success

* Turning Goals Into Habit Patterns

* Setting Effective Goals

* A Secret to Life Success

* Finding the Heroic Within Us

Goal Setting and Self-Regulation

Self-Regulation through Goal Setting. ERIC Digest.

by Schunk, Dale H.

INTRODUCTION

Self-regulation, or systematic efforts to direct thoughts, feelings, and actions, toward the attainment of one's goals (Zimmerman, 2000), has assumed increasing importance in the psychological and educational literatures. What began with research on self-control in therapeutic contexts has expanded to such diverse areas as education, health, sports, and careers (Bandura, 1997).

Most theories of self-regulation emphasize its inherent link with goals. A goal reflects one's purpose and refers to quantity, quality, or rate of performance (Locke & Latham, 1990). Goal setting involves establishing a standard or objective to serve as the aim of one's actions. Goals are involved across the different phases of self-regulation: forethought (setting a goal and deciding on goal strategies); performance control (employing goal-directed actions and monitoring performance); and self-reflection (evaluating one's goal progress and adjusting strategies to ensure success (Zimmerman, 1998).

This article addresses the operation of goals in self-regulation to include the influence of goal properties and other goal-related factors. Acquiring self-regulatory competence is an important developmental task and enhances human functioning across the life span (Bandura, 1997; Schunk & Zimmerman, 1997). By understanding the role of goals, counselors, teachers and other practitioners will be able to work with students and clients to assist them in learning effective ways to manage their lives.

THEORY AND RESEARCH EVIDENCE

Goals enhance self-regulation through their effects on motivation, learning, self-efficacy (perceived capabilities for learning or performing actions at given levels), and self-evaluations of progress (Bandura, 1997; Schunk, 1995). Initially people must make a commitment to attain a goal because it will not affect performance without this commitment (Locke & Latham, 1990). Goals motivate people to exert effort necessary to meet task demands and persist over time. Goals also direct individuals' attention to relevant task features, behaviors to be performed, and potential outcomes, and goals can affect how people process information. Goals help people focus on the task, select and apply appropriate strategies, and monitor goal progress.

As people work on a task they compare their current performance with the goal. Self-evaluations of progress strengthen self-efficacy and sustain motivation. A perceived discrepancy between present performance and the goal may create dissatisfaction, which can enhance effort. Although dissatisfaction can lead to quitting, this will not happen if people believe they can succeed such as by changing their strategy or seeking assistance. Goal attainment builds self-efficacy and leads people to select new, challenging goals.

Despite these benefits, goals do not automatically enhance self-regulation. Rather, the goal properties of specificity, proximity, and difficulty are critical.

Specificity. Goals that incorporate specific performance standards are more likely to enhance self-regulation and activate self-evaluations than are such general goals as "do my best" or "try hard" (Locke & Latham, 1990). Specific goals raise performance because they specify the amount of effort required for success and boost self-efficacy by providing a clear standard against which to determine progress.

A wealth of evidence in various domains supports the preceding benefits of specific goals (Bandura, 1997; Boekaerts, Pintrich, & Zeidner, 2000; Locke & Latham, 1990). The one exception is when specific goals are overly easy to accomplish, in which case they are less effective than general but difficult goals (Locke & Latham, 1990).

Proximity. Goals are distinguished by how far they project into the future. Proximal, short-term goals are achieved more quickly, and result in higher motivation and better self-regulation than more temporally distant, long-term goals. As with specificity, there is evidence from various domains supporting this prediction (Bandura, 1997; Boekaerts et al., 2000; Locke & Latham, 1990).

At the same time, some research shows that proximal goals do not promote performance better than distant goals (Locke & Latham, 1990). One suggestion is that individuals working toward distant goals may subdivide them, which produces the benefits. Proximal goals strengthen self-efficacy because they allow clear and frequent self-evaluations of progress. It often is difficult to determine progress toward a distant goal (Schunk, 1995).

Difficulty. Unlike specificity and proximity, goal difficulty does not bear a linear relationship to performance. Overly easy goals do not motivate; neither are people motivated to attempt what they believe are impossible goals (Schunk, 1995). Assuming that people have the requisite skills, goals that are moderately difficult seem to have the best effects on motivation and self-regulated performance (Locke & Latham, 1990).

Self-set goals. Researchers have found that allowing individuals to set their goals enhances motivation and self-regulation, perhaps because self-set goals produce higher goal commitment (Schunk, 1995). Other research, however, has not substantiated this conclusion (Locke & Latham, 1990). When people accept the legitimacy of assigned goals and commit themselves to attaining them the benefits are as strong as when they set goals themselves.

In working with students and clients it may be necessary initially to assign goals while simultaneously teaching them goal-setting strategies. As people learn to set realistic goals we might expect that self-set goals would produce higher self-efficacy and better self-regulated performance than assigned goals because they will be committed to attaining their goals and feel efficacious about doing so.

Multiple goals. In recent years researchers have investigated how people deal with multiple goals. Individuals can accomplish more than one goal at a time assuming that they have the cognitive and physical capabilities to do so and the goals do not conflict (Locke & Latham, 1990).

The situation becomes trickier when each goal alone is attainable but together cause conflict; for example, an adolescent who wants to be socially popular but also achieve well in school. More research is needed on this situation, but we might expect that goal importance would affect which goal is pursued more vigorously.

Learning and performance goals. Educational researchers have investigated the differences between mastery or learning goals, which involve learning skills or strategies, and ego or performance goals, which focus on performing well to avoid appearing incompetent (Dweck, 1999). Although performance goals can exert powerful motivational effects, learning goals are especially effective in enhancing self-efficacy and self-regulation (Schunk, 1995). Future research will help clarify their operation in educational and therapeutic settings.

RECOMMENDATIONS

Theory and research suggest a short list of ways to use goal setting effectively as a component of self-regulation. The following strategies are especially useful.

* Subdivide a long-term goal into proximal sub-goals. Help learners determine what sub-goals must be accomplished to attain their long-term goals.

* View the goals as reasonable and commit to attempt to attain them. Provide verbal encouragement (e.g., "You can do this.") to learners to help motivate them to accomplish their goals.

* Self-monitor progress. Students must learn how to gauge progress in learning or performance. Provide progress feedback on tasks where it is difficult for learners to gauge progress on their own.

* Use strategies for coping with difficulties. When progress is minimal students might seek help, attempt to determine a more effective strategy, or re-evaluate the goal and timelines.

* Self-evaluate capabilities. The perception of progress will strengthen self-efficacy, which is critical for continued motivation and self-regulation.

CONCLUSION

Goal setting is an integral component of self-regulation. Setting goals is a generic strategy that can be applied in various domains. Effective goal setting requires that people set a long-term goal, break it into short-term, attainable sub-goals, monitor progress and assess capabilities, adjust the strategy and goal as needed, and set a new goal when the present one is attained. This multi-step plan is a key to promoting healthier human functioning, higher motivation and perceived self-efficacy, and self-regulated learning and performance across the life span.

REFERENCES

Bandura, A. (1997). Self-efficacy: The exercise of control. New York: Freeman.
Boekaerts, M., Pintrich, P. R., & Zeidner, M. (Eds.) (2000). Handbook of self-regulation. San Diego: Academic Press.

Dweck, C. S. (1999). Self-theories: Their role in motivation, personality, and development. Philadelphia: Taylor & Francis.

Locke, E. A., & Latham, G. P. (1990). A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice Hall.

Schunk, D. H. (1995). Self-efficacy and education and instruction. In J. E. Maddux (Ed.), Self-efficacy, adaptation, and adjustment: Theory, research, and application (pp. 281-303). New York: Plenum Press.

Schunk, D. H., & Zimmerman, B. J. (1997). Social origins of self-regulatory competence. Educational Psychologist, 32, 195-208.

Zimmerman, B. J. (1998). Developing self-fulfilling cycles of academic regulation: An analysis of exemplary instructional models. In D. H. Schunk & B. J. Zimmerman (Eds.), Self- regulated learning: From teaching to self-reflective practice (pp. 1-19). New York: Guilford Press.

Zimmerman, B. J. (2000). Attaining self-regulation: A social cognitive perspective. In M. Boekaerts, P. R. Pintrich, & M. Zeidner (Eds.), Handbook of self-regulation (pp. 13-39). San Diego: Academic Press.

A Goal Unset... Is A Goal Unmet

When I was a young man, I made up a saying that I have repeated to myself many times since. That saying was the title of this post and is one of my favorites:

A goal unset... is a goal unmet!

Goals are a necessity for any successful trader. Without setting and working consistently toward specific goals, a trader will drift, lose momentum, and waste their trading account in arbitrary trades. Goals help traders achieve discipline and remain focused. Studies have shown that over a lifetime, people with written goals accomplish far more than people without them.

The photo in this post is a picture of Alexander Artemev, a gymnast for the U.S. Olympic Men's Gymnastics Team. Last night, he clinched the bronze medal for the U.S. Men's Gymnastics team with a stunning, flawless performance on the pommel horse. His routine was incredible! I've never seen such a masterful pommel horse performance that stood out above his peers. I'm sure that he never would have acheived such a performance without goals along the way.

I personally prepare goals weekly and I also use a daily activities checklist of 19 items (this week), using an Excel/Open Office spreadsheet. I examine my trading activity each week. I try to determine what my greatest weaknesses and impediments are, and then I set goals to help me focus on those areas to work toward improvement. Futures trading is a rewarding profession, but a difficult and sometimes excrutiatingly painful one, and people who don't treat it as such will be eaten alive by those who do.