You’ve all seen the stock guru’s out there luring you in to the “Make $200 a day trading stocks”. I’ve tried some of them and I lost a lot of money. It doesn’t sound bad at all, actually its quite amazing, making $200 a day for example, is a great income. Let me tell you why you shouldn’t fall for those types of claims.
Over the past two years trading stocks I’ve learned so much that my head is constantly spinning. One of my favorite books that I’ve read about the stock market Fooled by Randomness by Nassim Taleb has led me to make some of my own conclusions regarding some important lessons I’ve learned. Sometimes stocks just completely do the opposite of your expectations and you’re left wondering why. It’s the inconsistancies in trading that usually add to the already stress and anxiousness that I feel on a daily basis. My ultimate goal is to trade as worry free as possible, making profits and having a cushion so that I don’t care if I take small losses. Every traders dream! right?
I wrote a blog post a while back called Setting Daily Goals to Maximize Profts. Looking back at it, while it has some good tips as to looking at your potential for the long term, I have to completely disagree with myself on setting any type of daily goals. In fact, any type of profit target goals for that matter.
You can only take what the market gives you. You can’t ask for profit and every time you take a trade you have to first assume that you will take a loss (See: Risk Management 101). You first have to risk money to make money. So the first trade doesn’t work out, then you’re on to the next trade. Now you need to risk more to make more just to make your goal. It’s a system that I dislike. Not making your daily goal can cause you to increase risk because you want to make back your money. Sometimes you get lucky, but most of the time you end up even more red. I’ve been there so many times.
I believe any goal setting should be based more on your historical averages so you can account for your trading style over a period of time. I like to use my own history as a gauge to determine my future performance since you can’t assume you’re going to make a profit or a loss at any given time.
Surprisingly my favorite part of using historical performance to calculate an average daily expected goal is when it comes to taking a loss. The first thing I do when I take a loss is enter it into my spreadsheet. As soon as I do that it auto calculates my new daily average. It always hurts to take a loss, especially large ones, it happens and its apart of trading but as soon as I enter it in my spreadsheet, I see my daily average is only effected by a small amount. Its a reminder that you’re trading for the long term and helps you remember there is light at the end of the tunnel.
I know with the system that I created for myself shows me that my future in trading is extremely bright. I don’t care when I take a loss because over the long term it only effects my end result by a negligible amount.
“You can only take what the market gives you”
It’s really simple to create your own spreadsheet. I keep it basic, just a list of everyday’s profit or loss. I have that totaled weekly and then all added up to a daily and weekly average. I also pick the middle and end of the year as an end point and use a day counter to figure out how many trading days I will have. From there I take my daily average times the # of days you plan on trading. Its great to play around with and I’m always changing things on it, but it really helps to see everyday what my profit potential is and it really keeps me staying positive even on my worse days.
I hope this gives many of you some more realistic income expectations when it comes to trading. It’s not always as easy as it looks. I found that the less I think about making a daily goal the more profitable I become over time.
Stay Positive and Trade Green!