Managing Editor’s Note: Do you ever feel like you’re playing catch-up with the market? If so, you’ll want to read today’s essay closely…

It comes from Inside regular Larry Benedict. He’s a former hedge fund manager who went two decades without a losing year… including 2008 during the Great Financial Crisis.

Simply put, he’s one of the world’s most prolific moneymakers. And below, he shows the right way to set trading goals… And start moving the needle on your long-term wealth…

Goals…

We’ve all heard how important they are a million times since we were kids… and how we should set them to achieve what we want out of life.

But it’s not always the best advice when it comes to the markets.

In fact, setting goals can actually be dangerous if done wrong.

Today, I want to explain why… and share a far better and more realistic approach.

It’s something I still use to this day…

Unrealistic Goals

I started my career in the trading pits of the Chicago Board Options Exchange almost 40 years ago. I saw a lot of people come and go from the market.

And I mean a lot…

Some couldn’t cope with the pressure.

Trying to get their trades filled was too overwhelming, with hundreds of people screaming at each other at the same time.

I don’t mean that as any criticism…

Until you’ve stood there with your pen (to physically write out the old trade confirmation dockets) and your wits, it’s hard to appreciate how competitive it was.

But the one characteristic that undid most new traders was something beyond the sheer energy of the trading floor.

And it applies as much today as it did then…

Most newcomers (and sometimes even old hands) set far too unrealistic goals.

They simply wanted to make more money than the market would allow them.

Playing Catch-Up

One of the key parts of goal setting is a fixed end date.

That way, you can break the goal into a series of what should be steady, achievable targets.

And I say “should” for a reason. This is where so many traders come undone…

Take, for example, a trader who sets themselves a goal of making $100,000 in their first year.

Their daily goal becomes a piece of basic mathematics…

Divide that $100,000 by roughly 50 weeks in the year. That breaks down to $400 a day.

The problem arises when that trader misses the daily target… and decides to double the size of their trades the next day.

Or if they have a rough few weeks, they go in big the following month trying to play catch-up.

But overtrading, trading too big positions, or taking low-probability trades will almost certainly make matters worse…

Another losing month followed by even bigger catch-up bets sets off an inevitable downward spiral that eventually puts them out of the game.

Different Approach

That’s why I learned from blowing up my own trading accounts multiple times over that you need a different approach if you’re going to survive.

If I have a rough trading period, I don’t double up the size of my trades.

I do the opposite.

I halve the size of my trades until I get things back on track. And if that doesn’t work, I halve that size again.

All the while, I still steadily bank any profits I can…

I don’t hang on to a winning trade longer than I should in the hope of making more money to catch up my account. Doing so will often turn a winning trade into a loser.

And the biggest change I made was to switch my overall approach…

Rather than focusing on an ambitious profit target, I judged my performance based on the available opportunities.

If the market was flat and quiet one day, I wouldn’t be too hard on myself if I didn’t make a whole lot of money.

But if the market was busy the next day and I missed a lot of opportunities, I’d push myself to try to do better.

I learned to only trade what was in front of me and not chase some far-flung goal.

It’s also when my career really started to take off.

And if you too change your focus like I did, your trading can take off too.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict