Building Wealth Doc's note: When you ask investors why they trade, the likely answer is simple... They just want to make money.
But today, Greg Diamond – editor of Ten Stock Trader – explains two goals every trader should have to ensure success...
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Many traders fail over the long term for one major reason... They don't have strategic trading goals.
When asked to describe their objectives, traders often provide the same answer... Make as much money as possible.
But that doesn't ensure trading success...
Over time, the desire to get rich, without specific trading goals, could cause you to lose more money than you want... Some folks wind up losing it all.
If you want to succeed in different market conditions, you need to follow three techniques... Apply a sound trading strategy, manage your risk, and keep a trading journal to discover and manage emotional tendencies.
You can add "define your trading goals" to that list.
Today, I'll share two specific goals that can further boost your trading...
Simply put, trading goals determine investment success. And these two are especially important...
First, you need to define the percentage return you want to achieve every year. All of your trading decisions, including position sizing, should focus on reaching that goal.
Second, you should ignore what the major U.S. indexes are doing.
Let me explain...
In Ten Stock Trader, my trading goal every year is to make between 5% and 10%.
As my subscribers already know, I'm always looking out for the novice trader first. Some of you have more capital and a greater appetite for risk. Therefore, you can aim for a much bigger percentage each year, and that's great.
But I want to show beginners how to trade successfully. And as they grow, they can become more aggressive. Having a percentage goal every year facilitates this process.
So all of my trades and all of my position-size recommendations are geared toward achieving this trading goal.
Now, when it comes to the indexes... I don't care if the S&P 500 Index is up 50% or down 50%. That means nothing to me.
All I care about is extracting alpha (making money) based on what the stock market is doing. This approach allows me to be successful in any market environment.
Whether we're in a bull market (like in 2021) or a bear market (like in 2022), my job is to make money based on the trading goals I mentioned above.
This is a very important concept that many investors fail to grasp.
Now, I can already hear the critics chiming in from my basement office in Virginia...
"What about beating the market?"
"Why not just buy the S&P 500 and forget about trading goals?"
My response is simple... Stop watching the financial news outlets... and stop listening to hedge-fund managers. They're conditioning you to think you have to think like them.
"Beating the market" is actually one of my all-time favorite sayings... It always makes me chuckle.
Let's take 2022 as an example... The S&P 500 was down 20% that year. If you had held the S&P 500 (or a fund that tracks it), you'd be down the same amount. If you had invested in a fund that sought to "beat the market" and it was down, say 18%, would you feel good about beating the market by a measly 2%?
Probably not.
Break away from the crowd. Focus on your goals – not theirs – to make money every year whether we're in a bull or bear market.
Many funds generate returns based on the performance of a benchmark index like the S&P 500. It's simple... If they outperform the benchmark, they get paid. If they underperform, they don't get paid.
If that sounds like you, then yes, you operate in a different trading environment... And you should adjust your strategy based on how you get paid. But you should still define strategic trading goals to drive your success.
The rest of us will focus on our trading goals... Making money whether stocks move up or down.
Good investing,
Greg Diamond, CMT
Editor's note: Greg is warning that the stock market is headed for a major shake-up, potentially in the next few days. It could devastate most investors... or hand you multiple opportunities to double your money. But you have to understand what's happening, and the right way to play it. Click here for the full details.