#818 December 28, 2016
Tharp's Thoughts
Weekly Newsletter
  • Feature: Goal Setting for Traders and Investors — You’re Doing It Wrong, By D. R. Barton, Jr.
  • Workshops: April Workshops Finalized!
  • Mailbag: Letters From Our Readers...
  • FREE BOOK!: Trading Beyond the Matrix
  • Holiday Schedule: VTI will be closed Dec 30th for the New Years Holiday!
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Feature Article

Goal Setting for Traders and Investors —
You’re Doing It Wrong
by D. R. Barton, Jr.

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“…Proportion of people who successfully complete a New Year’s Resolution: 8%.”

—University of Scranton study published in Journal of Clinical Psychology

With the New Year coming fast upon us, I’ve been motivated to write a series on a very important topic: goal setting.

The good news: when properly done, goal setting is a powerful tool.

The bad news: You’re doing it wrong.

Most likely.

Recently, the most comprehensive study I’ve seen on New Year’s resolutions was conducted by the University of Scranton and published in the prestigious Journal of Clinical Psychology.

New Year’s Day is a big deal. It’s the most celebrated holiday in the world. And in the U.S., more people make New Year’s resolutions (45%) than watch the Super Bowl (~33%).

But as we saw in our opening quote, we’re pretty lousy at keeping them. Only 8% of people who make resolutions successfully complete one.

So, as a society, our goal setting prowess can stand a bit of an upgrade. Over the next few weeks, I’m going to share what I consider some of the best work being done on goal setting.

We’ll bust some myths. (Ever heard about that famous Yale study on goal setting? Stay tuned for full disclosure in an upcoming article…)

We’ll spark some controversy.

And when we’re done, you might just have some of the best thinking on goal setting for traders and investors to use as a foundation for your planning in the New Year. A bold statement, but it’s a journey worth taking! Let’s get started…

We’ve all heard about the importance of goal setting. I helped write a very insightful chapter in Van’s book Financial-Freedom Through Electronic Day Trading more than 15 years ago. In working with thousands of traders, from those who are brand new to former floor traders, I’ve found that most do goal setting for their trading wrong! In fact, there’s a growing body of work that shows that goal setting done the wrong way, especially stretch goals, may be counter-productive (see, for example, Goals Gone Wild, by Ordonez, et al, a 2009 report from the Harvard Business School).

Goal setting is not a cure-all. And in trading it can be downright harmful if done poorly. In this section, I’m going to give you some guidelines for how to set goals at every step of your trading journey – and since I developed this particular approach to goal setting, chances are that this is the first time you will have seen this useful and easy method. And the good news is that this approach takes much of the anxiety out of early goal setting and allows you to learn the art and science of trading in a low-stress way!

So let’s look at the two classic ways to set goals. There is an ongoing controversy over which way is best. Below, we’ll settle this age old controversy and provide some guidelines for how traders (whether you’re new or a seasoned veteran) can learn fastest by combining the two methods.

Every great debate must have two strong, compelling and competing view-points. Just think of the great debates of our generation:

  • Nature vs. Nurture: Which plays the most important role in a person’s success or failure — is it their genes or how they were raised?
  • Privatized Social Security vs. Government Invested Social Security: Should we allow citizens to direct the investment decisions for their tax-sponsored retirement savings or not?
  • Tastes Great vs. Less Filling: Okay, this debate has two problems. First, Miller has largely abandoned this hugely popular ad campaign. And secondly, every light beer out there (including Miller’s anemic entry) tastes lousy.

But this brings us to this week’s topic, and a serious one it is. How should traders and investors go about goal setting?

And indeed there is a controversy here. Instead of nature versus nurture, we have results-oriented goals versus process-oriented goals. And for traders and investors the differences are important.

If You Don’t Have a Dream, How You Gonna Have a Dream Come True?

Let’s start our discussion on goal setting for traders and investors with three simple words:

Make written goals!

If you don’t have trading and investing goals, chances are high that you’re setting yourself up for failure. And if your trading and investing goals aren’t written down (and reviewed regularly), then you have a much lower probability of achieving them.

I may do a whole section on goal setting later, because it is a critical activity for all traders and investors. But for this week — on to the controversy!

The goal setting debate comes down to two points of view:

  • The “results-oriented” camp. On this side of the tracks, all goals must be attached to tangible and measurable results. These goals are the favorites of management-types. They are also strongly emphasized among athletes who compete at a high level.
  • The “process-oriented” camp. Process-oriented goals emphasize the “how”. What are the things you will do to get to your end results? The adherents of this camp believe that one should focus more (or even exclusively) on the activities required to achieve a certain result rather than on the result itself.

In the trading and investing world, the debate about process vs. results in goal setting rages on. Should you set goals for how much you should make daily, weekly or monthly? Or should you concentrate on getting the process right and ignore the outcome?

Let’s shed some light on the “right way” for traders and investors to set goals by studying some common activities that almost everyone has worked to master.

  • Learning to walk. How do infants learn to walk? Constant trial and error, encouragement from loved ones, and patience. Here’s a question for you: How long a time period will you give your child to learn to walk? It’s a ludicrous question. The answer is, “As long as it takes!”

My son Josh was a “late” walker. He did not take his first unaided step until he was 15 months old. We were actually beginning to wonder if we had overlooked a developmental issue with him. But in a move that was quite unusual, when he finally took his first step, he didn’t stop! Most infants take a step or two or three and then flop down. Josh just kept going. He ended up taking 13 steps the very first time that he took off! I guess he was just ready.

When we are helping a child learn to walk, we concentrate on the process. Placing one foot in front of the other while maintaining balance. Taking steps that are not too big. Stepping on the ball and heel instead of the outside of the foot.

Contrast this to when the person is ready to compete in athletics. We help them get better by setting clear goals. If you want to train a sprinter, you continue to work on the process but you set clear performance goals to act as milestones for training.

Or how about learning to drive a car? (Those of you who have taught a son or a daughter how to drive, have many experiences to share I’m sure!) But when doing so, you have to concentrate on the process. You want to new driver to go a short distance without having or causing accidents. And you want them to be able to do that consistently. You don’t care if it takes ten minutes to get to the store instead of five. You just want them to operate the vehicle safely — as they improve their skills they can learn how to time entries into busy intersections and do other things that will make them faster and more efficient drivers.

A competitive race driver will have a different regimen. Instead of concentrating on just getting around the track, the driver works on issues that will allow him or her to shave seconds off of their times. Faster results and better times will be the goal for the driver on every circuit taken.

Trading and investing are learning experiences as well. And while there is no one “right way” to set goals for everyone, there are some practical guidelines that can help traders and investors at all steps along their journey to mastery. Process-oriented goal and results-oriented goals both have their useful place for traders and investors.

However, if we get the wrong mix of process vs. results goals at the wrong time in our trading career, the process can be counterproductive or down right destructive.

In my next article we’ll dig in and find out what the proper balance between these two goal-setting camps is right for you.

I hope that all the love and joy of this Christmas and Hanukkah season are with you and your families! And may you have a happy and prosperous New Year!

Your thoughts and comments are always welcome — please send them to drbarton “at” vantharp.com

Great Trading,
D. R.

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Letters From Our Readers...

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Dear Dr. Tharp,

I came across your work when reading 'Trade-Your-Way-to-Financial-Freedom.' And now I am working on my Peak Performance course and preparing for the Peak 101 workshop this February. I've already sent you an e-mail before, but this time I want to make it specific about your influence toward my life.
The major one is that I've found the road-map to my whole life by your work.

After I got a job 3 years ago, I worried about how I live and what I am looking for. I really tried to find out what I'm good at and what fits well, and which area I really want to know more about regardless of its prospectiveness or future brightness.

At the beginning when I got to know trading and your work, I was so surprised how at how eager I was. I would even wake up at midnight to study, I was so curious I couldn't sleep. Trading is my pure endeavor. I took leave to study your position sizing work. I'm very pleased to know more about trading through your teaching, because I really agree that trading is about the human performance. And I know the importance of my thoughts (especially beliefs), consciousness, mental strategies, mental states for successful trading. I believe that I can enjoy the road to trading with your work, and I'm sure that I will be happy and have a resourceful life through transformation. I'm going to make it with VTI. I can definitely see and visualize my future regarding trading. And I believe that I achieve my excellence of trading step-by-step, and no matter what, transformation through a trading metaphor is my top priority in life (I always think about this at the beginning of each day). Keep your eyes on me so you will see how I'm really dedicated toward my goal of trading and transformation. Again, I think that trading is related to my strengths and desire of knowing more and my lifetime goal. That's why I really want be a Super Trader which is an excellent and high-quality program for training and educating traders.
Moreover, I feel less stress now and I have had no more headaches (I'm not 100% sure if this related to your work, but it might be).

Through Volume 2 of Peak Home Study Course, I realized what I have to do for reducing stress overall. I've changed a lot toward my attitude and life-style (I even started to eat oatmeal for breakfast with two spoons of flax seeds). You know, based on the result of Investment profile of VTI, the most pending issue for me was the stress I felt. After I've done the overall assignment you asked, I can definitely say I'm not as stressed anymore by any occurrences (because I treat and deal with it effectively). So thanks to that, I conversely feel more happiness toward my daily life. I'm even smiling more all the time.
So I'm very grateful for with your writing and invisible assistance of what I needed to be awake so far and in the future, and I'm highly looking forward to meeting you next February in Singapore.
With respect,
Minjae — Korea

Dear Dr. Tharp,

Hope you have been enjoying the trip to the Nile!

I am writing to express my sincere gratitude to you. I just received my Investment Psychology Profile Report and am very surprised to see my Overall Ranking uplifted from 49.16 in 2012 to the current 6.54. I expected a substantial improvement but never dreamed of that much.

In the past four years, I have finished studying the "Peak Performance Home Study Course" twice, "How to Develop a Winning Trading System that Fits You" and "Business Planning for Traders and Investors." I must confess that I have studied only less than half of the latter two packages though.

Per your recommendation, I studied the game-changing program of " The Sedona Method Course". It is critical for me in transforming my thoughts in every way. In addition to, of course, your classic book of " Trade-Your-Way-to-Financial-Freedom" and "Super Trader".

Thanks for all these masterpieces and great recommendations.

Thank you again and I hope I will meet you some time in the future to say thank you again, in person.

Wish you and your team all the very best!

Kenneth H.
  • Two Peak Performance 101 Workshops Coming. Cary, NC and Singapore
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  • Discounts for the January workshops will expire soon after the New Year.

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