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Trading Goals - Yours Could Be Hurting Your Options Trading
Over the weekend, I enjoyed my first Pumpkin Spice Latte of the season at Peet’s Coffee
& Tea (PEET) with my girlfriend. An article in the weekend edition of the New York Times
business section caught my eye.
It’s not often that I take the time to write about an article that I read, but I found
it very interesting. It was located on page five and entitled, ” Experts’ Advice To
the Goal-Oriented: Don’t Overdo It.” While the story does not deal with trading directly,
it does hit on some very important points related to goal setting.
I have had the privilege of helping hundreds of people become more consistent and profitable
traders. Over the years, I have noticed a trend developing in how successful traders
set goals versus how struggling traders set goals.
The article focuses on academic research from an experiment that was conducted by Eller
College of Management. The participants were asked to create as many words as possible
using a combination of letters, similar in concept to the game of Boggle. There were
three groups and each group was given a chance to check their words in a dictionary to make
sure they were legitimate. The first group was given the goal of forming nine words and
if successfully produced, they would receive financial compensation. The second group was
given the same goal but no financial incentive. The third group was simply told to try their
best.
The researchers had a code whereby they were able to match the worksheet with the answer
sheet. They discovered that both groups that had the goal of creating nine words, whether
or not money was involved, cheated 8 to 13 percent of the time. Those in the third group,
who were just doing their best, rarely cheated. Why this article is so interesting is because
one of the first things I ask traders that I mentor is, “What are your trading goals?”
The majority of the time the answer is,
“I want to make more money.”
From all my experience in working with traders, I can get a good idea of someone’s hang-ups
with how they answer this single question. Wanting to make more money is not a goal,
but rather a desire. That is why I suggest creating goals that are stepping stones to
your ultimate desire. For instance, if you want to make more money, then I would try
to help you figure out what core issues are preventing you from obtaining that desire.
Sometimes, it could be letting losing trades draw down the account by not obeying a defined
exit. Other times, it could be fear that paralyzes you from taking the next legitimate trading
set-up.
What I would do with a struggling trader is make them focus and pinpoint the exact source
of the issue they are having. It can be many things, but if we focus on and fix that core
issue, the trader will be more successful and ultimately achieve their desire of making
more money.
Trading Goals Warning
There is a lot of pressure present when you think about naming your goals. One section
of the article discusses an emotional block that hindered the performance of former New
York Jets quarterback Ken O’Brien. O’Brien had the tendency to throw too many interceptions
in his early career. To fix the problem, the team provided him with a contract that penalized
him every time that he threw an interception. The contract worked in achieving the goal
because he, in fact, threw fewer interceptions. However, he also threw fewer balls overall,
even when there were good opportunities to do so. It became clear that O’Brien was
so worried about getting penalized for an interception, that his anxiety hampered his
aggressiveness on passes he should have, and normally would have, taken. In the long run,
this fear of punishment becomes a burden which not only restricts the player, but also hinders
the entire team’s overall performance.
I see this concept to be a big problem for hedge funds. Hedge fund managers take on a
lot of stress because of the tremendous pressure to perform. A lot of times, this pressure
presents itself in fund managers acting in unethical ways. Often, they will
pay insiders of companies or government officials to get some kind of edge
over the rest of the investing/trading community. Frequently, this information can be tracked
because they can use leverage to buy into the options market and load up on contracts
that exceed normal daily trading volume. This unusual activity is the very reason why I
follow the action in the options market.
Very recently, two Chinese companies received a proposal to go private and their stock saw
very elevated accumulation of contracts in option calls. The companies are 7 Days Group
Holdings ADR (SVN) and Feithe International (ADY). I noticed the unusual accumulation
of these calls and pointed it out to my premium members because my experience tells me that
some kind of news was likely to be published soon to move prices higher.
What You Can Do Right Now:
I would suggest that if you want to become more successful, then do not focus on a goal
that will consume you and drain you like a vampire. The majority of people have very
broad desires, such as I want to make more money. Enjoy the journey and focus on the
path itself of setting goals that will lead you to achieve that desire. Lose your bird’s
eye focus on the end result and concentrate on creating the stepping stones you will need
to have the greatest probability of achieving your goal.
Please let me know what your goal is the space below and what you are going to do differently
to achieve that goal after reading this article.