Sam started trading almost three months ago. He’s read that it’s important to set specific goals and try to reach them. He thinks, “I’ve got to set my expectations high, otherwise I won’t try hard enough. I think I’ll try to shoot for a 20% profit per month. I’ve got big dreams, and if I don’t strive to reach them, I’ll never achieve them.” Big dreams can be a powerful motivator, but there’s a huge difference between lofty unrealistic dreams and specific ambitious goals that one strives to achieve with a methodical and detailed plan.
Industrial psychologists have studied goal setting. They’ve found that high-performance goals are not always the best goals. Here’s why. One may not have the experience or skills to reach a goal that exceeds one’s abilities. For example, would you try to run a 20-mile marathon if you can’t even run a mile? Of course not. So why make such high and lofty trading goals until you have the requisite knowledge and skills? Regardless of the job task, many novices make the mistake of setting their goals too high. It’s understandable in away.
Ambitious people are taught to set high goals. If one doesn’t even consider achieving an ambitious goal, then one may not even try to achieve it. It is vital that we set high standards for ourselves and go out and do whatever it takes to reach them. But psychological studies show that it is the way one goes about achieving a high-level goal that matters.
When novices set high goals that exceed their skills, they usually fail, feel discouraged, and give up. So if you are a novice trader, like Sam in our example, it may not be a good idea to immediately strive for a 20% profit per month, at least not yet. It’s useful to distinguish performance goals from learning goals. When we set goals, we usually think of setting performance goals; that is, we think about a specific percentage a month we should achieve. But for novice traders, it is more useful to consider setting learning goals rather than performance goals. A learning goal is more modest and can be achieved more easily.
It involves breaking down the larger goal into specific steps that are doable, and rewarding oneself after each step is accomplished. For example, a learning goal may be stating, “I’m going to study for 30 hours a week to learn a new trading technique.” The specific goal will not immediately lead to the larger goal of making a 20% profit per month, but it is easy to achieve, will lead to personal satisfaction upon completion, and in the long run, will contribute to the long term goal of becoming a seasoned trader.
So if you’re a novice trader, set yourself up to win. Don’t set overly high-performance goals; set high and realistic learning goals. Break the bigger goal down into specific steps, and reward yourself after you complete each one. When you become a seasoned trader with advanced skills, you can set out to achieve those high-performance goals. But right now, it’s in your best interest to focus on skill-building, rather than high performance.