Introduction

Before starting a task, we often set targets or goals to measure our progress so that we can eventually obtain our targets within the desired timeframe. In trading and investing, we also do the same goal settings. However, new traders/investors often set goals which are only related to percentage of Return On Investment (ROI) or how much dollar value I should make but without giving sufficient thought on the detail processes, proper tools, knowledge and support to actually make it happen.

Make your Goals about Process and not just about Results

For example, New Traders or Investors should not make goals such as:”I will make 20% a year” or “I will make $1000 a month”, which are too focused on the outcome but loses the emphasis on the process of achieving it.

To us, these are unpractical and impractical goals, normally applicable for unconscious or uninformed trader. We are not saying these goals are unachievable but merely not sufficient thoughts being put through and hence will not be repeatable. Instead, new traders/investors should make goals to develop a process in doing trading or investing which suits their risk appetite and systems.

Imagine that you are operating a business; your business will not make consistent money if there is no well established process on running the business. However, when the business process is well established, profits will start to come in consistently. By refining the business process regularly, profits will grow and the business will last for decades. However, if the business goal is to make “X” dollar of profit but with no corresponding goals relating to developing a good business process, chances are the business will not last long.

Trading and investing is exactly the same, to build a winning process, below are three goals that one may refer to. They may seem easy but it is difficult to master. Focus on achieving these goals when placing a trade and positive results will follow.

1. Always have a Plan

To start a business, one always has to have a business plan, trading and investing is no different. Before making a trade, one must develop a trading plan. A trading plan should cover aspects such as how to enter and exit the trade, how the trade will be managed or monitored, when to cut loss, what is the position sizing to manage your risk, etc.

The goal is to have these pointers well thought through before entering the market. It is also a best practice to document down the reasons why you enter a trade in a form of trading journal for future references and ongoing improvement.

2. Trade with an EDGE, not with an ITCH

Ensure that every potential trades are traded with an EDGE, which means that the odds of winning is higher than otherwise. This can be achieved by having proper software tools to screen the stocks daily, doing proper homework regularly on the stock via chart reading & analysis rather than buying just based on tips/rumours/news announcement, as well as learn the proper knowledge to detect smart money footprints and market trends.

Trading with an ITCH means the trade is just placed based on pure emotions or gut feel without proper homework. Even if these trades turn out to be profitable, it is just based on luck and can hardly be repeated. Worst still, this may create a false sense of over confidence and ego for the newbies to take on a much bigger position on subsequent trades, causing much bigger loses which could wipe out even your capital.

3. Keep it Simple

Generally, most non-professional traders/investors has the myth that a complex strategy is more convincing but often it complicates our thinking and impair our judgments. Keep the strategy simple but practical so that the rights and the wrongs are easily identifiable.

This makes refining the strategy much easier and faster. For example, if the strategy is to take position in shares which pays out good dividends, focus on trading these shares and avoid switching to trade small cap companies out of a sudden just because the capital gain seems more attractive for small cap stocks during certain period in stock markets.

Although the strategy might need some tweaking when economic climate changes, but keep these revisions simple and avoid making it complex.

Conclusion

Goal setting for new traders/investors should be simple and not complicated, place emphasis on essentials of developing the process instead of just focusing on the results. Remember you must assess and know whether your trading system or investing approach has an EDGE with practical and proven results. Else, you should look for a proven trading/investing system that is used by professionals worldwide.

As long as the above pointers are followed and you refine the process as you gain more experience, results will come and it will be sustainable. Remember, incidental good results without a good process often are luck and it is not repeatable. On the other hand, results achieved through a good process and proper knowledge will ensure that you have acquired a skill set to achieve above average returns consistently, in which case you could be well on your way to be the fund manager for your own fund and achieving your dreams of financial freedom and early retirement!

Watch out for next article in this series of education articles brought to you by iVSAChart, “Article 8 - Develop a Trading Plan” under Series B: Preparation Before Trading or Investing (what professionals worldwide are practicing).

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.