When people get interested in trading, there is usually only one reason behind it: money. And there is nothing wrong with it. Trading is a great opportunity to generate an income where you are not paid by the hour and you can even set up your trading in a way that it generates a more passive income stream where you make some money on the side.

This is all good and being motivated by money can be a great driver. However, this can quickly change into the contrary when a trader approaches his monetary goals from a wrong perspective. In this article we want to highlight some research findings that show that when people view money in the wrong context it can actually harm their trading and, then, we want to help you adopt a healthier relationship with it to set yourself up for success.

 

 

If you need money, you won’t get it – research confirmed
When it comes to being driven by money, there are usually two things that happen when a trader has a wrong perception:

 

#1 Unrealistic expectations

We are all guilty of that to some degree: when starting out as new traders, we projected that it would only take a few years to turn a few hundred or thousand Dollars into a huge pile of cash and quit our day jobs. Having unrealistic goals quickly leads to frustration when those expectations aren’t met. The quitting rate for new traders is astronomical (40% quit within 1 month) and one of the main reasons are probably wrong ideas and expectations.


Source and references here
 

Once a trader sees that trading isn’t going to be the easy and fast way out, there are usually three things that happen: he either quits, he takes a riskier approach to trading (larger positions, more trades, gambling mentality), or he starts system-hopping if he still believes that there must be a trading method out there that can generate those returns.

Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios. 
– Kumar: Who Gambles In The Stock Market? – Accessed through: econ.yale.edu

 

#2 The need to trade

High expectations, as we said, can lead to taking more trades and increasing risk to meet return goals. As we will see shortly, setting yourself goals for X amount of money is the surest way to trading failure.

Especially traders with small accounts struggle with that because they soon realize that a small account will not get them to where they want to be. Although you can read that trading a small account is no different, it’s just not true. Trading with less capital is definitely harder – much harder. With a small trading account, your wins are often close to meaningless which then creates the need to trade more and introduce more risk in your trading.

High net worth investors are likely to have lower turnover.
– Anderson, Stranaham: Account Turnover and Demographic Profiles: Which Investors Trade Too Much? – Accessed through: Bradley.edu

 

What not do when it comes to trading goals
When it comes to setting goals, there are a few don’ts and I will explain why you have to avoid them at all costs if you want to become a better trader.

 

#1 Daily/weekly return goals

I see so many traders say that they want to generate 3%, 4% or 5% per week because they have calculated that this will help them achieve their goals in a certain amount of time.

Monetary goals are the worst of all because it creates the need to trade and it puts the traders in a constant state of hunting for signals. 99% of the time, such traders will never meet their goals and they end up losing money because they take mediocre trades, hoping to realize their target.

You can’t control how much you can take out of the market. The only thing you can control is the risk of your trade and the types of trades you take. The outcome is not in your hands. Some weeks, you will get more and better trades and sometimes you just have to sit it out. You have to eliminate the need to trade as much as you can.
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