By Rob Colville on August 8, 2014 in
Be honest, what are your trading goals, and how do you measure success? Is it all based on win rate, or perhaps bottom-line profit and loss (P&L)?
Well, most trading goals do revolve around dollars and cents, and because we’re all here to make money, perhaps that’s understandable. However, P&L alone is not the best way to measure how you’re doing in the markets. In fact, P&L is not even in some traders’ top 10, and it—alongside most other money-related measures—probably doesn’t belong in yours, either!
With that being said, there are plenty of other trading goals that are well worth pursuing, and although they aren’t centered on P&L, you’ll soon see how achieving them will pave the way for your lasting success and prosperity just the same.
When talking about trading goals, many will say that they are working to squeeze every penny from winning trades, while some aspire to simply book more winning trades than losing ones. And, how many out there are actively trading in pursuit of that ultra-lucrative or “perfect” trade?
Now, admittedly, risk control isn’t as “sexy” as pursuing that elusive “home run” set-up, but precise risk management and escaping losing trades with only minimal damage is actually the stuff careers are built on…not those other things.
That’s why unwavering and exacting risk management should be one of your foremost trading goals, especially since it’s really easy to measure using only your trade journal. And, there’s the added incentive that it’s much more attainable than any of the money-related trading goals out there, too.
You see, unlike P&L, risk control is a function that’s entirely in the hands of the trader. It doesn’t take “luck,” outside factors, or even the market moving in your desired direction to effectively manage risk.
You can do it starting with a simple commitment right from the very first trade: never risk more than 1% of your total capital on any given trade, and only trade set-ups that offer a favorable and well-defined risk/reward profile. From there, always place careful stops, and never move them in order to give a losing trade more room to “turn around.”
All this is part of an effective risk management approach, and these are all trading goals that are well within reach for traders in every market, regardless of account size, experience level, or strategy.
It’s a great place to start, and while it’s not nearly as fun to tell stories about risk control at cocktail parties, achieving your goal of managing risk with perfect precision will always translate into better P&L in the long run.
Have you ever broken one of your trading rules and gotten away with it? Maybe you traded an imperfect set-up, or used too much risk, but the trade went in your favor and you made money anyway. At the end of the day, it’s easy to think “I did very well trading today,” but think about it, did you really trade well? Not really.
That brings us to what might be the single most overlooked stat in all of trading: plan compliance.
So much bigger than just tracking whether you made or lost money with a given position, plan compliance is a measure of how precisely you executed your trading plan from top to bottom. From pre-trade analysis, to risk, to execution, to trade management, it helps gauge your level of discipline and commitment to the process you use to achieve the desired results.
Plan compliance—not win rate, P&L, or virtually any other measure of trading success—will really tell you how well (or how poorly) you’re doing in the markets. So with that, when it comes to trading goals, if there’s only one for which every trader should aspire, this is it, plain and simple!
As with risk, you can measure plan compliance right in your trade journal, simply by rating—extremely objectively, of course—how closely you traded according to your plan, step by step throughout every trade. And while it’s not realistic to expect a 95% win rate in the markets, you can demand that much from yourself when it comes to plan compliance, so aim high and then hold yourself accountable!
Ultimately, making money is every trader’s objective, but at the same time, having trading goals that focus solely on money will often do more harm than good. Money causes biases, afterall, and in trading, we can all sometimes take undue risk or “break the rules” and still get lucky and turn a profit, so P&L alone is also a lousy measure of how well we’re actually trading.
Instead, “Focus on the methods, not the money,” when you identify your trading goals, and be nothing short of hell-bent on making sure that you stick to your proven trading plan right down to the finest detail. Also, make it your mission to control risk with relentless precision so you never have to absorb a drawdown from which you or your account cannot recover.
In the end, those are trading goals that most everyone is duly equipped to achieve, and quite honestly, doing so will naturally have an immediate and long-lasting positive impact on P&L without the need to focus or fixate on it.