Dr. Doug's Blog

Only Losers Set Money Goals

Jan. 11, 2012 Comments

Do you want to know how to make more money in 2012?

The answer is to focus on the Process rather than the Outcome.

Process

The things you can control like your trading or investment process.

Outcome

The things you cannot control like whether you make or lose money on a trade or investment.

Contrary to what everyone thinks, we don’t get to control whether we make money when we trade. The market, economy and global events are in charge of that part of the equation.

Like a professional tennis player, your only job is to make sure you are prepared, willing and able to execute when it’s your serve or when the ball is hit back at you. That’s it. But keep in mind, that preparation only comes from hours and hours of focused, specific and intentional practice. I firmly believe that Geoff Colvin was right when he pointed out that Talent is Overrated.

In trading the financial markets, I believe this concept is particularly true.

Almost all traders make the mistake of starting the year out by setting money goals. When you do that, you set yourself up for failure for two reasons:

1) Every single trading decision you make from that point forward is going to be focused on just one thing, the money – and that is the one thing you cannot control.

2) All money does is serve as a distraction to people for a variety of  reasons. You can learn more about this in the area of behavioral finance which explains why smart people make bad choices when it comes to money. (I have found Dan Ariely’s work to be of particular value).

To correct this, what I have my clients do is set daily, monthly an yearly goals that are focused on their process, meaning the little things they have to do put themselves in a position to gain the greatest benefit if the market cooperates or to limit their losses if the market does not.

The Little Things

  • Knowing their edge (competitive advantage)
  • Timing into the market
  • Sizing their trades based on their conviction level
  • Having game plans and stops to manage the risk

Don’t believe me just yet? Fine. Try this one on for size:

Whatever you do don’t think of pink elephants dressed like ballerinas.

What are you thinking about right now? Probably pink elephants dressed like ballerinas.

Wow, really? If I were you, I would keep that to yourself because people may think you are crazy.

My point is that our minds are easily influenced by simple statements and those statements force us to focus on things whether we want to or not. And when you focus on the wrong things, you lose.

Ever heard a coach say this, ‘Whatever you do, don’t fumble the football.’

What ends up happening? The guy fumbles the ball.

‘Whatever you do, don’t hit the ball into the bunker on the left-side of the fairway.’

What ends up happening? You hit the ball directly into the bunker on the left-side of the fairway.

‘Whatever you do, don’t double fault.’

What ends up happening? You double fault.

Did you accomplish all of these failures because you suck? No.

Well, to be fair, you may also suck, but in this case the more likely reason is because you are unintentionally forcing yourself to focus on the WRONG things (such as fumbling the ball, landing in the bunker and double faulting on your serve).

I am not by any means suggesting that if you change the way you think that you will automatically transform into the greatest golfer on earth or a Wimbledon tennis champion. But what I am saying is that when you focus on the wrong things you DECREASE your chances of being successful. And for traders, the wrong thing to focus on is the money.

My advice, go back and look at the goals you set for 2012 and if they are worded so that you are focusing on the outcome (results) then change them so that you are forcing yourself to focus on the process (the little things).

Trade well and Happy New Year.

Dr Doug Hirschhorn

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