The Value Of The Daily Goal To Simple Day Trading

“If you don’t know where you’re going, you will probably end up somewhere else.”
— Laurence J. Peter

 

Those on the path to simple trading mastery know that one of the most important questions facing Day Traders each day is whether to have a Daily Goal or not and, if they choose to have said goal, what it should be.

Like virtually everything else in trading (day trading specifically), opinions vary (widely) on this topic. As always, the real answer to the question of Daily Goal or not is it depends…  on what works for you.

Having had substantial battles with this question myself, I have a pretty simple answer… and that answer is an absolute and unequivocal yes!

So What Is A Daily Goal Anyway?

First, for the unfamiliar among you, a Daily Goal is the when of “say when.” It’s a point, percentage or dollar amount that lets a trader know when they have reached the day’s stopping point… or goal.

For example, if a stock Day Trader working with a $100,000 account wants to make 50 basis points (i.e. 1/2 of 1% per day), he’s looking to make $500.00 per day at the outset [$100,000*.005].  Similarly, if the trader’s account grows to a balance of $120,000 and he still targets 50 basis points per day, his Daily Goal becomes $600.00 [$120,000*.005].

Now… here’s an important point that’s often left out… but shouldn’t be.  As nature abhors a straight line, so too does your trading account.  What I mean by that is that though your Daily Goal will be $500, $600, or $2,000, your end of day result will almost NEVER be the exact Daily Goal amount. 

Instead, your job is to minimize your risks and let your winning trades run with the goal (there’s that word again) of AVERAGING your Daily Goal amount over the “long run.”  In other words, you want to make sure the average daily gains exceed your average daily losses by at least the amount of your Daily Goal. 

For example, if your Daily Goal is $500 per day initially, you can achieve that by making exactly $500 on every trade (not likely).  Or, you can lose $250, make $1,500, lose $400, make $2,000 and lose $850 on consecutive days.  Both results lead to an average of $500/day over the 5 day period, but the latter result is far more likely… and doable. 

Same Result Daily Different Results
$500 $250
$500 $1500
$500 -$400
$500 $2000
$500 -$850
Total $2500 or Avg $500 Total $2500 or Avg $500

 

As you can imagine, the key is to take trade setups that have shown themselves to consistently yield multiples of your normal per trade risk.  I know… I know.  Your eyes are starting to glaze over and you feel a yawn coming… Here’s the translation: in order to make this little math trick work for you, you have to make more when you win than you lose when you lose.  This is also known as expectancy, but that’s an article for a different day.

The Daily Goal In Practice

At any rate, in addition to focusing on setups that yield far more than your standard risk (positive expectancy), I use a technique that I call a ratcheting.  Each day I determine my Daily Goal as a function of my maximum risk.  If, as I’m taking my trade setups, I exceed my daily goal by a modest amount, I close up shop and take no additional risk on that trading day.  If, as often happens, I’m in a trade when I exceed my daily goal, rather than immediately exiting the trade, I simply move my stop to a point that protects my daily goal while allowing me to stay in the trade.  That trade is closed if the stop level is breached.  At that point, I’m done for the day.

How To Determine Your Daily Goal?

There are many ways to decide on a Daily Goal ranging from a straight ticks/points to a fixed dollar amount to a formulaic target. Whatever the method used, the primary advantage that Daily Goals have in common is that they tell the trader when to alter his behavior. They provide the trader as traveler a destination if you will, allowing that trader to know when he’s “there.”

Whether that leads to the trader shutting down trading for the day, reducing position size, tightening trade entry requirements or some combination of these, reaching/surpassing the Daily Goal triggers the prudent trader’s discipline button and forces him to move to protect the day’s profit.

The Point

In trading (as in many other businesses) making money is not hard. Retaining said profits is where difficulty comes in. Adding a Daily Goal to your trading plan can help you keep more of your hard earned profits. So stop thinking about it and “just do it.”

You can thank me later.