The Fallacy of Setting Daily Goals

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I was once blinded by an argument.paradise

One so obviously framed that it had to be true.

Unfortunately, what is obvious or self evident is not always true.

Call it reductio ad absurdum at its finest.

Let me share with you how it goes, tell me if you’ve ever heard this.

What if i were to tell you that you only needed to make an average of 2 ES (E-Mini S&P) points a day and you could pursue the lifestyle of your dreams?

By the way 2 ES points is equivalent to $100 per contract traded.

Now if you capture 2 points per day for each trading day in the week (2*5) that’s 10 points a week or $1000 per contract. 

Multiply that by 4 weeks in a month (4*10) and that’s 40 points a month or $4,000 per contract.

Lastly multiply that by the number of weeks in a year (12*52) 624 points a year or $62,400.

So here the last leap of faith, based on the minimal cash requirements to open a futures trading account you can use margin (some brokers offer initial intraday margin requirements of less $3,000 for the ES contract) you can as an example take a $10,000 futures trading account, and trade a maximum of 3 contracts intraday day. ($10,000/$3,000 = 3.33)

So multiply 3*$62,400 and hypothetically you can earn $187,200.   Or grow your account by a whopping 1872% in a year!calculator

Sounds good doesn’t it, so why doesn’t it work?

Forget about the fact that markets offer more on some days than other days. 

Or that there are actually only 251 trading days a year. 

Or that there’s the cost of commission and fees.

Or that performing on that level would put you in the top 0.5% of traders.

Some may even argue that it’s not that you have to make 2 points a day but rather you only need to average 2 points a day.

But there’s a more profound psychological reason why this line of thinking or more specially goal setting doesn’t work.

In his seminal work in Thinking, Fast and Slow, nobel prize winner for behavioural economics,  Daniel Kahneman, details a very interesting cognitive framework called Reference Points and it has a major impact around we as humans handle loss and gains.

Loss Aversion

Have you ever noticed that your fear of loss can often times outweigh your desire to gain?lossaversion

“Loss aversion refers to the relative strength of two motives: we are driven more strongly to avoid losses than to achieve gains. A reference point is sometimes the status quo, but it can also be a goal in the future: not achieving a goal is a loss, exceeding the goal is a gain.”

As we might expect from negativity dominance, the two motives are not equally powerful. The aversion to the failure of not reaching the goal is much stronger than the desire to exceed it.

People often adopt short-term goals that they strive to achieve but not necessarily to exceed. They are likely to reduce their efforts when they have reached an immediate goal, with results that sometimes violate economic logic

Kahneman illustrates this with a great story regarding New York cabdrivers.

“New York cabdrivers, for example, may have a target income for the month or the year, but the goal that controls their effort is typically a daily target of earnings.

Of course, the daily goal is much easier to achieve (and exceed) on some days than on others.

On rainy days, a New York cab never remains free for long, and the driver quickly achieves his target; not so in pleasant weather, when cabs often waste time cruising the streets looking for fares.

Economic logic implies that cabdrivers should work many hours on rainy days and treat themselves to some leisure on mild days, when they can “buy” leisure at a lower price.

The logic of loss aversion suggests the opposite: drivers who have a fixed daily target will work many more hours when the pickings are slim and go home early when rain-drenched customers are begging to be taken somewhere.”

Defending the Status Quo

Now let’s relate this story back to trading. 

Let’s say I give myself a daily goal of 2 ES points per day.  Sounds easy right?

Well how is this likely to play out?

Well on days where I can hit my daily target.  Then all is great and well in the world.  I’m making progress towards my weekly and monthly goals, what could be better than that?

However on a day when I can’t hit my daily target what happens is I start digging myself a proverbial hole that I will need to dig myself out from.

Miss my daily target a few days in a row and I will start to feel some serious anxiety.

And all of this can really start to snowball.

Perhaps I will start to take on unnecessary risk to make up for previous losses.  Perhaps I start to look for trades that aren’t really there (impulse) to try to make something happen.  Perhaps I cut my winners short because I don’t want to have another losing day. 

End result is I’ve overtraded and churned my account, and ultimately I’ve created some incredibly difficult false expectations for myself leaving me feeling frustrated and exhausted.

The conclusion is profound: The daily goals we set for ourselves can create a false ceiling.

[Tweet “The conclusion is profound: The daily goals we set for ourselves can create a false ceiling.”]


If you’re the type of trader who likes to shut it down early.  Reexamine those beliefs.  Far be it for me to dictate what’s right for you. 

Go through your stats and really look into whether or not it’s serving you to shut down the trading dome early?

Reexamine why it is you shut down your trading dome early? 

Is it motivated by fear?  A fear of loss or a fear of being wrong?  Or a fear of not making the status quo?

On days where you’re trading is on fire keep pushing the envelope.

These days will make up for the days where there is less opportunity.

On days where the market is not offering good opportunities or on days where you just can’t trade your way out of a paper bag, create clear trading rules on when you should stop trading or trade smaller.

I think Mike Bellafiore said it best is his book The PlayBook: An Inside Look at How to Think Like a Professional Trader.

“When you are trading well, you keep trading. You may reach a new level in your trading that you never imagined possible. When you work hard at something, experience the power of your skill compounding, then you just might become better than you ever imagined. But you will never discover how good you can be unless you sit in your seat, stay, and trade”


The Fallacy of Setting Daily Goals

by editor time to read: 5 min
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