What is your goal as a forex trader? Here are some ways you might reply:
“My goal is to make a million dollars trading forex.”
“I want to trade for a living within one year.”
“I want to earn $5,000 a month trading.”
All of these may sound just fine to you. But are they necessarily viable goals? This question deserves a deeper look.
The reality is that setting goals as a forex trader are a bit more complicated than a lot of newbie traders think. Many of the goals that novice traders set for themselves are unrealistic in some way.
In this post, we will take a look at why it is important to set realistic trading goals. We will go over examples of good goals and bad goals and explain what makes for a smart forex goal.
Why You Need Realistic Trading Goals
Setting unrealistic goals for trading forex is setting yourself up for failure. Here is why:
- Unreasonable goals encourage unreasonable trading decisions.
- Unreasonable standards beget discouragement.
Basically, if you set goals that are unrealistic, you are probably going to find yourself trading in a way that is deeply inefficient. You will get further and further away from your goals through your poor decisions.
Moreover, as you fail to reach your unattainable goals, you will experience deep negative emotions like anger, frustration, fear, shame, and disappointment.
These negative emotions may feed further into poor trading decisions as you become desperate to catch up to where you think you need to be.
In some cases, you could also get so frustrated and burned out by trying to achieve the unachievable that you flat-out quit.
What are Some Examples of Unrealistic Trading Goals?
To help you understand what we wrote above, let’s go over a few examples of problematic trading goals and what makes them so.
“I want to make a million dollars trading forex.”
This goal is problematic for a couple of reasons. First of all, it is completely vague on the timeframe. A million dollars in a year? A million dollars in a lifetime?
The other issue is that for a lot of traders, it is not realistic, at least within the short term.
Say you are opening your FX account with $1,000. Trying to climb to a million dollars within the next year, or even the next few years, would be incredibly unlikely.
But let’s say this goal is a big motivator for you. A few years go by, and you are nowhere near reaching it. How are you going to feel about yourself and your trading? Some traders might be so discouraged as to pack it in.
Let’s look at another example of a troublesome trading goal:
“I want to earn $5,000 a month trading.”
That is not a bad long-term goal in a general sense, though you would need to specify a timeframe for when you expect to be able to achieve this. But expressed as it is here, it may not be a very flexible one.
Let’s say, for instance, that it is closing in at the end of a month, and you have made $4,500. You are frustrated, because you are still $500 short of your goal, and you may feel like a failure if you do not get that extra $500.
The trouble is, you are not seeing any good trade setups. But if you do not trade at all, you will have no shot at making $5,000.
You might feel tempted to take some trades you would otherwise pass over in the hopes of meeting your quota. It would not be surprising if you lose those trades since the setups are not so good.
In short, goals that specify the exact amounts you want to earn within a given timeframe or the exact number of trades you want to take within that timeframe can encourage overtrading.
Here is another example of a useless forex goal:
“I will become a great forex trader.”
Okay, what does that actually mean? What constitutes “greatness?” It is not just highly subjective, but completely undefined as stated here. You would need to get a lot more specific to have this goal be a meaningful one.
How Can You Set More Useful Trading Goals? Try S.M.A.R.T. Goals
Now that you have had a chance to understand why some types of trading goals are counterproductive, let’s talk about how you can set goals that will actually help you. We recommend you use the S.M.A.R.T. goal system.
A S.M.A.R.T. goal is:
We also suggest you focus more on your process for trading than on your outcomes.
Obviously, you want your outcomes to be as profitable as possible. But sometimes good outcomes are the result of pure luck and do not last. Other times, you might be having poor outcomes in the short term, but be on your way toward much better outcomes in the long term since you are actively learning.
Here are some examples of S.M.A.R.T. forex goals:
- “I will aim for $5,000 a month, but I will not overtrade to get there.”
- “I want to earn enough money to quit my day job in five years.”
- “I will spend one hour a day on improving my forex trading.”
Let’s go over each of the examples in a little more detail.
“I will aim for $5,000 a month, but I will not overtrade to get there.”
This goal is a simple variation of the one we discussed. Let’s say for the sake of this example that you already are at the point where you are earning around $5,000 a month, and your goal is just to continue.
It is specific, measurable, attainable, realistic, and timely to think you can maintain that kind of profitability on average going forward. You have an added dose of realism in this goal by acknowledging that some months you might not get there, and that is okay. By making it your goal to do your best without overtrading, you are protecting your profits.
“I want to earn enough money to quit my day job in five years.”
This goal may not list a specific dollar amount, but it is still specific and measurable—you probably know roughly how much money you would need to trade full-time.
It is certainly timely; five years is a concrete timeframe. Is it realistic and attainable? That really depends on where you are at with your progress as well as what kind of bankroll you have starting out. But there are certainly plenty of scenarios where it might indeed be possible.
We also like this goal because it goes further than just focusing on making money. It also highlights how you want to use that money.
In this case, you will be using what you earn to set yourself free from your 9-5 and instead do work you find rewarding on your own terms.
A goal like this has greater meaning than simply making money just to do it. If you can close your eyes and visualize the life you want to lead as a full-time forex trader, it may do a lot to keep you going when you are having a hard time.
“I will spend one hour a day on improving my forex trading.”
Here is a goal that focuses entirely on your process. It is certainly specific, measurable, attainable, realistic, and timely. You can start accomplishing it as soon as today, and carry on from there (of course, you will need to choose an amount of time each day that is manageable for you).
What is great about this type of goal is that no matter what, it will help you achieve your other forex goals.
Even if you stumble along the way and make mistakes, you will continue to get better at what you do, because you are putting in the effort.
“I will follow my trade rules with discipline and only take the very best setups.”
This goal is also process-oriented. For it to be specific enough to be a S.M.A.R.T. goal, your trading method will need to make it clear what constitutes “the very best setups.”
The value of this goal is that it helps you stay on track as you trade, avoiding arbitrary deviations from your trading plan that could eat into your bottom line.
“I will raise my win/loss ratio by 3% in the next two months.”
This goal is performance-based, and it may seem quite modest—but that is entirely the point. It is specific, measurable, and timely, and was designed especially to be realistic and attainable.
Setting a goal like this one can be encouraging because incremental goals are easier to achieve than those that require you to make a massive leap in performance.
It can be discouraging to set large goals and struggle to reach them. But if you set small, incremental goals, you will get a nice confidence boost each time you achieve them.
A goal like “I will follow my trading rules with discipline” may not sound as thrilling as “I will make a million dollars trading forex in a year.” But in actuality, it will get you a lot further toward that possibility.
Take a look at your existing forex goals, if you have them. Review each of them to see if they are S.M.A.R.T. If they are not, ask yourself what you could adjust to make them S.M.A.R.T.
You can also consider setting some brand new goals, especially if none of your current goals focus on how you are going to make money. You can kick-start your trading with XM ndb which offers you $50 free trading credit.