Have you ever heard of Goal Setting Theory? I spoke about this topic at my 1st TEDx Talk in Sydney, Australia (still waiting for it to post online, but here’s my 2nd Tedx Talk posted). And, while you may not think it applies to you, trust me it does!
Basically, it’s a specific approach to setting goals in a way that will make you more likely to achieve them. This is a concept that began to gain traction in the 1960s and which I believe can augment the teachings of the Tim Sykes Millionaire Challenge.
Here, I’ll offer a brief overview to Goal Setting Theory, then give specific tips on how to make it work for you as a day trader.
What is Goal Setting Theory?
It all started with the pioneering research of Dr. Edwin Locke in the late 1960s. After spending much time researching goal setting and motivation, he released a 1968 article entitled “Toward a Theory of Task Motivation and Incentives.”
In this article, Locke stated that employees were motivated by clear goals and appropriate feedback. He went on to say that working toward a goal provided a major source of motivation to actually reach the goal–which, in turn, improved performance.
Locke’s research showed that there was a relationship between how difficult and how specific a goal was and people’s performance of a task. He found that specific and difficult goals led to better task performance than vague or easy goals.
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Telling someone to “try hard” or “do your best” is far less effective than specific instructions such as “try to get more than 80% correct” or “concentrate on beating your best time.” Likewise, having a goal that is too easy is not a motivating force. Hard goals are more motivating than easy goals because it’s much more of an accomplishment to achieve something that you have to work for.
Several years after Locke’s findings, another researcher’s work was able to expand upon it. Dr. Gary Latham studied the effect of goals set in the workplace and his findings supported Locke’s. The inseparable link between goal setting and optimal workplace performance was formed.
Later, Locke and Latham went on to publish a work entitled “A Theory of Goals Setting and Task Performance.” In this document, they reinforced the need to set specific and difficult goals and they outlined three other characteristics of successful goal setting.
Goal Setting Theory: Why it Matters
The information on Goal Setting Theory above probably didn’t surprise you much as you read it. But, actually, this is a great illustration of how pivotal this research was.
Because of Locke and Latham’s work, the idea of using specific goal setting techniques for workplace success has become the standard.
This, of course, begs the question: how will you apply his theory to your own performance goals?
Goal Setting Theory as a trader
As a trader, here are some of the different ways that you can incorporate Goal Setting Theory into your routine:
Set specific goals. Setting specific goals will help your career in many ways. For one, they keep you motivated. So, when setting goals as a trader, focus on things that really fire you up. Aim big, not small! Nobody’s ultimate dream is “pay off student loans.” That’s simply a pit stop on the road to what you really want out of life. Set big, lofty goals and the smaller stuff will often fall into place. Specific and meaningful goals will help you use the Goal Setting Theory concept to your advantage.
Set sub-goals. Let me clarify something above. While I am a big believer in setting big, inspiring goals, I also do believe in breaking them down into bite-sized chunks. So, for example, if paying off your student loans or debt is keeping you from getting ahead, paying off those things would absolutely be a sub-goal on your way to realizing your much bigger goal. But, it’s only by setting specific long-term goals that you can break down the steps necessary to reach them.
Create markers for evaluating your performance. As you work toward your goals and gain more experience as a trader, you can use your own past performance as a marker for your productivity moving forward.
For example, say you are successful in 6 out of 10 trades this month. You might try to see how to increase your average to 7 out of 10 the next month. It could be another challenge, but basically, the idea here is to use your past performance to try to streamline and improve in the future. It makes it kind of a fun game and challenge with yourself.
Stay accountable. Whether you’re part of the Tim Sykes Millionaire Challenge team or a long time trader, having a mentor or peers to check in with about your goals can be very helpful. It might be an informal thing or it might be more scheduled: say a five-minute check-in on a weekly basis. If you know that you’ll have to discuss your progress toward your goals with someone on a frequent basis, it increases motivation. You’re more likely to stick to your goals!
Make sure your goals remain inspiring. Be sure to have frequent check-ins with yourself to evaluate your progress toward your goals. But, even more, be sure to stay in touch with how inspiring your goals are. Over time, priorities and desires can shift. Say that you started with a goal of buying a luxury car, but for whatever reason that no longer fires you up. Clearly, you’ll need to change your goal so that it is more aligned with what will keep you inspired.
For example, while obtaining physical wealth was the most motivating thing for me for a long time, now I am more focused on charity. Give yourself room to adapt.
Employing concepts of Goal Setting Theory can really help to improve your trading career. Not only does it give you something specific to work toward, but it really helps you maintain inspiration and motivation. This is necessary for trading success!
So, please do leave a comment below if Goal Setting Theory now makes better sense to you!