How do you Define Trading Success?
Success is a word that gets tossed around alot in the discussion of trading performance and trader development. Very rarely, though, does anyone ever actual define it in any concreate terms. There’s a very good reason for that. We all have different ideas of what success in trading means, just as we differ in how we view success in other ventures.
The problem which presents itself in trading is that too often new traders (and even more experienced ones at times) come in to things thinking big figures. They plan on making 100% a year or turning $1000 into a $1 million account. The potential for those sorts of gains is definitely a major attractor to trading. The problem is that when you get into trading with that sort of idea in mind you dramatically increase your chances of failure.
Why?
It’s simple really. You will measure your performance based on your view of what success means. If you think doubling your trading account in a year is success, then anything less is going to be a failure. Failure tends to lead people to give up. There is no doubt in my mind that this is a major contributor to the large numbers of traders who leave the markets each year.
So how should you define success? I can’t tell you specifically, of course, but I can offer up some ideas.
Actually, my first suggestion is to not measure success in terms of returns. And this goes for traders of all levels. Instead, focus on trading well. By that I mean maintaining a well conceived and developed trading plan and sticking to it. In other works, making good trades. It’s awfully hard to sustain any type of longer-term performance consistancy if you cannot consistently stick to your plan and make good trades. That’s the basis of it all.
Now, having said that I do understand there is some value of having an objective performance measure on the return side. I definitely wouldn’t get too caught up with hard objectives, as the markets will decide which opportunities will present themself. You can’t force them to appear. That said here are a couple of benchmarks which make some sense.
Break-even
Most new traders start of losing money as they figure things out so it makes sense to set the first part at stopping the bleeding, so to speak.
Beat your bank account
If you’re going to have your money in the market it makes sense to at least outperform what you could get if you just kept in your savings account, right?
Make it worth the time you put in
If you are going to do something with the expectation of making money you probably should make it worth the time you put in. Figure out what your time is worth and aim to get your trading to paying you at least that much. This is only really a good metric if you have a sufficiently large account, though. You probably shouldn’t be shooting for that if you’ve only got $1000 in trading capital.
Risk Adjusted Return
This is probably the best metric overall. I mean sure, making more than your bank savings rate is good, but if it means taking ten times as much risk then its not really a great deal.
These are just some ways you can measure your trading progress and success. Just remember that trading is like anything else. You aren’t going to be good at it right off the bat. It’s going to take time and experience to become consistent. Be patient and smart and don’t shoot for the moon from the start.
Also, don’t compare yourself to others. Everyone trades differently and will have difference performance as a result.
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