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The Trading Plan – 2. Goals and Objectives

By November 29, 2011November 7th, 2023Active Investor Education, Uncategorized

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The next section of the Trading Plan states your goals and objectives. As Stephen Covey said: “Begin with the end in mind.”

The Mission Statement is the “why” section; the Goals & Objectives section is the “what” section, what you would like to achieve “in the end”. Your goals and objectives will flow from your mission statement which is essentially your ‘big’ goal. This now needs to be broken down into specific and measurable goals. To once again quote Stephen Covey : “If you don’t set your goals based upon your Mission Statement, you may be climbing the ladder of success only to realize, when you get to the top, you’re on the WRONG BUILDING.”;

There are three key areas of objectives:

    • Reward objectives. These are the periodic returns that a trader would like to achieve broken down into smaller periods, such as monthly, quarterly, annual, 3 year, 5 year and 10 year goals.
      Whilst actual returns achieved will depend on the performance of the market being traded, setting reward objectives helps determine the risk and money management rules that will be deployed, as per the next section of the Trading Plan. Also, if more than one methodology is being traded then setting reward objectives helps determine what instruments and markets should be traded, whether leverage should be used or not and how to diversify your investing capital across different asset classes, instruments or markets.
    • Risk objectives. This is the maximum drawdown that one is prepared to endure in any single trading period, per system and/or overall across all systems. This could set parameters for when to reduce position sizes so as to remain within this drawdown objective or set a “shut-off” valve as to when to cease trading until the market returns to Low Risk or once again there is a high probability that the market is in sync with your systems(s).
    • Skills objectives. This is a set of objectives to achieve skills-based targets with respect to analysis (technical, fundamental or otherwise), mindset, trade execution, market environment understanding, trading understanding, practicing trading, learning to research trading methodologies, and any other that you may wish to set. A schedule could be included here (or the next section of your Trading Plan) that details the books to be read, courses to attend, DVD’s to watch, Blogs to follow, internet research to be done, software to learn, etc to achieve your skills objectives.

All three of these goals and objectives are important and should be elaborated upon in the Trading Plan.

Can’t wait until next week? Read the next blog in The Trading Plan series:

The Trading Plan – 3. The Trading System or Strategy

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