To master or not to master, that is the question

Introduction

Setting goals is an important factor in trading success. You are 42% more likely to achieve your goal if you write it down

Not all goals are created equally though. The type of goal you choose can have a major impact on your performance.  

In trading, we can divide them into either performance goals or mastery goals.

Performance goals are ones that are directly correlated to an outcome. For example, you want to make $5,000 profit on your trading account this month.  Performance goals are short term, and easy to measure. 

Mastery goals focus on improving your performance and skills and gaining task mastery. For example, you want your trades to have a risk reward of 3:1.

In trading, it is easy to focus on your performance goals, because ultimately, you trade to make money. However, mastery goals are a more successful way to go.

1.    Less procrastination

2.    Better improvement 

3.    Better motivation 

You are less likely to procrastinate if you choose a mastery goal.

 Behavioural researches studied this, and when they guided one group through writing down a performance goal, and the other through writing a mastery goal, they found that the performance goal group procrastinated 50% more than those mastery goal group.

This matters greatly in trading, where timing is everything and everyone is looking for their distinct edge. 

You are more likely to show improvement if you choose a mastery goal.

Using mastery goals allows for better learning, which is one of the cornerstones to improving your behaviour. If you have a performance goal, you’re more likely to use a defensive strategy when you fail, such as blaming external factors, or withdrawing effort. If you have a mastery goal, you’re more likely to use constructive strategy when faced with the same issue, such as increasing your effort or looking at your mistakes. With a mastery goal, you exhibit more self-regulated learning and behaviour, seek feedback on your actions, and choose tasks that maximize opportunities for learning. The traders who advance the quickest are the ones who learn from their mistakes and adapt their strategies and behaviour accordingly.  

You are more likely to stay motivated and not give up if you choose a mastery goals. 

This is because your satisfaction isn’t based on external indicators, and mastery goals are always just a bit beyond reach, so long term motivation is easier to maintain. You always have something to focus on and strive for. With performance goals, once you’ve failed once, you’re less likely to continue pursuing the goal with the same enthusiasm. The more you fail your goal, the more your motivation declines. With mastery goals, you are more likely to be intrinsically motivated, and are satisfised with your performance as long as you are making progress, which lends itself to long term motivation and success.

Maintaining motivation can be a challenge for any trader, especially after experiencing a string of losses or when your gains haven’t met your expectations. Successful traders are intrinsically motivated; they don’t need the right market conditions, or the right P&L numbers, to stay on the right path. 

Key Actions

As outlined above, mastery goals are essential to long term trading success. This is not to say you should disregard your performance goals. They are necessary and helpful, but you should not overweigh their significance. 

If you are a trader who is still improving, your performance goal should be to breakeven. Your mastery goals should be a combination of WR and RR to help you achieve this.

Here are some combinations of WR and RR that can make you breakeven.

WR: 40%, RR: 1.5:1

WR: 50% RR: 1.

WR 67%, RR: 0.5:1

Especially in trading, long term success will be based on your skills, not on quick wins.   Focusing on making each winning trade to hit a target that is greater than your acceptable loss will give you the discipline to hit mastery goals on every trade, and the overall performance will start to take care of itself.

Another mastery goal is disposition ratio. If you tend to spend a long time in losing trades and a much shorter time in winners, focus on staying in winners for longer, or cutting losses quicker. Again the change in disposition will have a knock-on impact on your RR and ultimately your overall performance.

Conclusion

Setting goals is one caveat to successful trading, but the type of goal you set matters greatly. Mastery goals have been proven to aid long term success. By focusing on how you get to those wins, instead of the win itself, you will create the solid foundation needed to be a great trader. 

To begin with, choose 2 mastery goals and focus on them for 30 days, then compare your results with you performance goal results.