Update – this post was written before the launch of CME’s newest product – the Micro E-Mini. Here’s a link to a Micro E-mini resources page.
Written by DeWayne Reeves of CFRN.net. Burton Schlichter is a partner and featured broker at CFRN.net.
One of the most common characteristics among highly successful traders is being extremely goal-oriented. People are most effective, happy, and not surprisingly, physically and mentally healthy when they have clearly established goals. From the small and mundane tasks, such as cleaning your desk, to more important life issues ranging from child rearing to estate planning, having a goal and making steady progress towards that goal creates a state of mental clarity and a sense of purpose.
That’s the good news. The flip side of the coin is that poorly planned goals can have the complete opposite effect. Once we firmly establish a specific goal, our subconscious kicks in gear to “get ’er done”. This has nothing to do with will power — it’s simply the way we are wired. While establishing and pursuing goals can lead to a higher quality of life, unless they are structured properly, they can also lead to depression and an overwhelming sense of failure. So before we start flipping those switches and the synapses start firing, let’s clarify some sound and solid principles that will become the foundational structure of every goal we set both in our E-mini Trading business and other areas of our life as well.
1) Goals Must Be Clearly Defined
In order for a goal to be realistic, it must also be clearly defined. When I ask new traders what financial goals they have for their trading business, I often get answers like, “Well, you know, I just want to make some money.”
I inform them that’s not an acceptable goal. The second try usually sounds more like, “Well, you know, what I mean is that I want to make a lot of money.”
That still doesn’t cut it. At this point, I can see the frustration on their face and hear it in their voice. They just want to give me the right answer, but it’s about more than that. Once they get to the third try, in an effort to please me, they go the opposite direction and explain that what they really want is to be able to provide for their families, give money to charity and do good works. I really hate hitting the game show “no” buzzer on this heartfelt response, but I’m forced to do it. They just went from Gordon Gekko to Charles Ingalls. Truth is you can be either one you want, but not without a clearly defined goal.
The point I’m trying to drive home is that a true goal can have no ambiguity attached to it whatsoever. You’re about to throw a very important switch in the back of your brain and your subconscious is going to labor 24/7 to make it a reality. You better make sure it has the proper instructions. Haphazard directions will not only stand in the way of success, but it can make you feel a little bit frustrated, angry and eventually crazy. Sometimes paranoia shows up just to keep the others company.
As with any business plan, you need an earnings projection. Your business plan will cover capital expenditures, recurring fixed expenses, initial investment, the legal structure of your trading entity, etc. However, those items are more along the lines of factual fill-in-the-blank type answers. What you need here is your earnings projection — a hard dollar amount. You can project it daily, weekly, monthly, or quarterly; anyway you choose because it’s your plan and your goal. As we work through the next 2 steps, you will better understand why it is absolutely critical that your goals be well defined.
2) Goals Must Be Realistic
Your goal needs to be within your capabilities. Is it possible to make $50k your first year as a trader? Yes. Is it possible to make $500k? Yes.
“Can I make a million dollars?”
Again the answer is yes because with trading, literally anything is possible. A realistic goal is just as important as being clearly defined. If your goal is not realistic, you will fail to achieve it. If you fail to achieve it, you run the risk of beginning a downward spiral. That’s not to say you can’t or won’t pick yourself up and take another run at it, but after a string of failures, it can be difficult for even the strongest trader to bounce back. Keep in mind, you’re entering an arena where some make 8 figures a year and 90% of traders fail to last a year. Don’t be discouraged; I am just trying to emphasize the importance of goal-setting.
So what is realistic for a new trader? Initially you will spend 1-3 months in training (possibly longer) before you begin trading real money. Once you begin trading live, we teach you to strive for 2 points a day net. You will only be trading 1 contract which works out to be $100 a day. I will encourage you to pursue this course of action for 2 weeks. If you are successful on this mission at the end of 10 days, you will have earned $1,000.00. Intraday margins for the S&P 500 E-mini Futures are $600 per day. After completing your first goal of earning $1,000.00, I will suggest that you increase your number of contracts traded to 2. You’ve proven yourself pretty effective at this point when it comes to capturing 2 points a day net. It is a clearly defined and realistic goal. Let’s not tinker with success just yet. There will be plenty of time for that later.
What happens if at the end of 10 days, you haven’t netted 20 points (2 points per day average)?
We figure out why. During your training period, you established your ability to capture 2 points a day net. That’s how you graduated to Live Trading. Before you ever put 1 dime of your risk capital to work, you have already established that 2 points per day net is realistic. At this juncture, we can return to the simulator for a few days, a week or however long it takes to isolate the issue that is hampering your performance. It’s a fairly simple process of elimination, and once we nail it, you move back into the live account. We know the 2 points per day net is realistic, now we just need to reach our goal of doing it 10 days in a row. Perhaps this time it goes off without a hitch or maybe we encounter a new issue. No problem. We move back into the simulator, isolate the issue, resolve it, and move back into the live account.
You will repeat the process as many times as it takes until, by your own hand and with your own skill, you prove your ability to net 2 points a day for 10 consecutive days. You have removed most elements of luck, good or bad. You have proven to yourself that this has nothing to do with gambling and everything to do with learning to put the odds in your favor as you pursue only high probability trade setups.
At this point we have:
- A clearly defined goal
- A realistic goal
I want you to step back at this point and understand what an important milestone you have potentially reached and the full scope of your achievement. The amount of time it has taken you to reach this point is not important. You are building life skills that will serve you for the rest of your career, and if managed properly, will serve generations to come. In an industry where some traders earn 8 figures and 90% of those who want to become traders fail, you may have made the cut. You’ve crossed the line. You are no longer just some guy or gal with money in an account somewhere; you are a trader. Smile, take a deep breath, and walk in humility.
Now we have to make a very important decision. Where do we go from here? Remember we increased our number of contracts to 2. This means that every 5 days we net 2 points, and we potentially make $1,000.00. After 15 consecutive days of netting 2 points per day, you have now potentially earned $2,000.00 from the market. At this point, I will suggest that you add a 3rd contract. You began with no experience or very little. You defined a goal of 2 points per day, and you’ve proven it to be realistic. With the addition of the 3rd contract, every 5 days that you net 2 points could bring you $1,500.00. With holidays factored in, you may have created a job in a bad economy that might pay approximately $75,000.00 per year?
3) Goals Must Be Attainable
This is very similar to having a realistic goal. For the goal to be attainable, it must be in your wheelhouse (to use a little pop vernacular). In other words, the goal is only attainable if it falls within your scope of capabilities. The good news? Based on how we train you and based on how firm we were with you about ensuring that your goal was clearly defined and realistic, step #3 is practically already in place.
Your clearly defined goal was simply to net 2 points a day. Correct?
Your clearly defined goal was also a realistic goal. Correct?
Had you stepped in with some of the half-hearted but well-meaning goals we discussed earlier, you would probably still be struggling or out of the game by now. Had I allowed or encouraged you to pursue an unrealistic goal of a million dollars in your first year, you would have probably spun out of control and blown up your account.
At this point, you’ve almost met your goals and honed all the necessary skills. You defined a realistic goal and attained it.
There is a 4th and final step to successful goal setting. Please keep in mind that just as we walked through these steps as they apply to E-mini Futures Trading, this structural foundation will work in every area of your life, from being a better steward of your resources to running a marathon.
4) Goals Must Be Measurable
Unless you can measure your progress, how will you ever know when you arrive? It’s that feeling of accomplishment that comes when you plan your work and work your plan. Did we not measure each and every step of our progress on this journey to becoming a successful trader? And when things didn’t measure up, we knew exactly what to do. We did not get discouraged, we did not get depressed and no computer monitors were harmed in this goal setting exercise.
Now that we’re here, not only will you continue to measure your success, but over time using the exact same method that got you to this point, you will probably choose to raise the bar. If there’s a setback, you will know exactly how to handle it and how to get right back on track.
Definable – Realistic – Attainable – Measurable
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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