Financial Targets – Show me the money

Financial Targets – Show me the money

On the 19th April 2017, Tom Dante, tweeted a poll on whether traders had monthly, quarter or annual financial targets.

The responses were interesting, and seemed to be along the lines that setting these sorts of goals could do the following

Limit Potential Growth or returns from trading.

Add pressure to the trader.

Give the wrong mindset.

Pressure the trader into taking trades not in the plan just to meet target.

Cannot manage returns only risk.

All of these are valid responses and to certain extent I agree with them.

I feel that financial targets do have a place as a tool to improve a trader’s performance.

And I mean using financial targets as a tool to improve a trader’s performance rather than target or end game to hit.

Therefore, I think they should be used as goals to help drive the behaviours and focus needed to be improve.

As with all tools, they need to be used appropriately.

Here is a list of when I think financial goals are a waste of time.

Trader has no edge.

The target / goal here should be to find an edge. At this stage, the trade does not even know what they are potentially capable of, and it is bit like saying that I want to win the Formula 1 Championship when I have never even seen a car.

Whilst that might be a dream it is not a relevant goal at this stage and would do nothing to improve the traders lot.

The primary goal here should be to find an edge.

Trader has an edge but not applying it consistently over time.

Primary goal in this situation is to be applying the edge. Financial goals will do nothing but add more pressure to the already hard task of applying the edge consistently.

Trader has an edge, applying it consistently but still makes mistakes in applying the edge.

Primary goal, should be working on reducing the mistakes down to acceptable level, as close to 0-10% as possible.

Financial goals in this situation will do nothing to improve a trader’s lot. It will just add pressure to the situation and increase the error rate.

Where a financial goal could help, would be to track the financial cost of these mistakes, to help drive behaviours that will reduce the error rate.

When financial goals can be beneficial.

Trader has an edge, applying it consistently, mistakes are rare. They are at stage 4 and above of the competency curve.

Stage I – Unconscious incompetence – the person is blissfully unaware of their ignorance

Stage II – Conscious incompetence – the person aware of their skills shortage

Stage III – Conscious competence – the person is able to demonstrate their competence with a high level of concentration or focus

Stage IV – Unconscious competence – the person is able to demonstrate their competence with a low level of concentration or focus

Stage V – Shared competence – the person is able to teach others by explaining not only how but also the the why’s to achieve a level of competency

What does a trader do then to help drive behaviours that will improve the performance over time, when they are at stage 4 and better.

All the low hanging fruit in terms of goals have been done.

I feel that having a long term financial goal can help drive the trader to view their trading and what they should be doing on a day to day basis in a different light or at least give them a structure.

A trader at this level, will have an understanding of their risk profile and the typical returns of the system including the variance based on market and seasonal cycles.

One question, traders / everyone should ask is where do I want to be in the next five years?

By using a financial goal, this then can be broken down into performance goals and what needs to be done.

I always use the following process to help me decide what I need to do to meet my goals. This process can be used for any type of goal.

Outcome goal

What is my goal?

What results I need to do to achieve this goal?

Process goal

What process do I need in place to do achieve the outcome goal?

What skills do I need to achieve these processes?

What do I need to practice / learn to have these skills?

Performance Goals

What benchmarks and standards that I need to hit to ensure that I am following my process goals?

As we can only control entries and risk, by setting a long term financial goal, this can then be reverse engineered backwards to see what sort of risk we should be taking and whether realistically, our trading system is potentially capable of giving us this sort of return, bearing in mind variance.

Example

Trader A is at Stage 4

He has built his account up to 15000 USD.

His previous performance shows that the system has 50% win rate and the win to loss ratio is 2 to 1, and averages 3 trades a day.

His goal is to turn his 15,000 into 1,000,000 over a five year period.

Using quarters as the primary measuring device to avoid the focus being on the short term performance.

Trader A needs to return of 23.5% every quarter compounding, to turn this 15,000 into 1 million in 5 years.

Trades taken per quarter.

4 days a week, to allow for days off and unforeseen circumstances,

11 weeks to a quarter, again to allow for holidays and unforeseen circumstances.

4 x 11 = 44 days. Which is under the typical 65 working days per quarter.

Average of 3 trades a day x 44 days = average of 132 trades per quarter.

A return of 23.5% of 15000 is 3525.

Therefore, a performance bench mark for the first quarter is 18525.

Running 100 simulations shows that the variance of this sort of system and gives us a minimum variance of 18,924.

In theory, we can see that it Trader A risks 1.5% of the initial account balance on every trade over the quarter.

This is gives Trader A the best opportunity of hitting his bench march without forcing anything different on to the trader, but just adjusting one of the things that we can control.

The risk.

This is a rough example of how to use financial goals to guide performance over the long term, but I believe they should not be used as targets and should only be used as a tool when appropriate.

18th April 2017 – Bund Daily Trade Plan

18th April 2017 – Bund Daily Trade Plan

News

0700 GE WPI 1330 US BUILD PERMITS

Previous Day – UP DAY WITH NEUTRAL BULL CLOSE

Big Picture

60m – Up TR, hold 63.16-63.32 bac 63.82/89 for cont

10m – Neutral, Bac of 63.82/63.42

Context Play

1. 60min Up TR cont

Longs: bac 63.82, hold 75-65 on retest (rrt), t 64.02 t 2 64.21-40

2. Balance

Shorts: hold 75-82 or bof of 82/89 t 58 t2 50-41

Longs: hold / bof 50-41 t 58 t2 75-82

3. 60min PB

Short: bac 41 t 30-16

Longs; hold 30-16 t 40 bac t 58

12th April 2017 – Bund Daily Trade Plan

12th April 2017 – Bund Daily Trade Plan

News

0800 SP CPI 0930 UK UNEM/CARNEY 1035 GE AUC
1330 US EX/IM 1530 US CRUDE

Previous Day – Neutral Range Day

Big Picture

60m – Up TR, for cont, hold 00-84 and bac 63.39

10m – Up TR, for cont, hold 11-05 and bac 63.39

Context Play

1. Up Tr cont

Longs: hold 63.10-05 t 63.30-39 bac 39 t 63.51 bac 52 t 58 tt2 68-72 bac t64.02 bac 02 t 64.21-40

2. Balance

Short: hold / bof 63.30-39 t 18 bac t 10/06 bac 08 t 97-85

Longs: hold / bof 97.85 t 06 t2 19-30

3. T/C to down

Shorts: bac 62.83 t 59-50 bac 50 t 62.38 t2 25-18

11th April 2017 – Bund Daily Trade Plan

11th April 2017 – Bund Daily Trade Plan

News

0930 UK CPI 1000 GE ZEW 1500 US JOLTS

Previous Day – Bull Up day with strong close, but with bof of 63.19. oe at 2sd rot daily

Big Picture

60m – Up TR, for cont, hold 00-84 and bac 63.30

10m – Up TR, for cont hold 11-05 and bac 63.30

Context Play

1. Balance

Shorts: hold/bof 63.19-30 t 63.00 t2 90-85 bac 85 t 73

Longs: hold 73-59 t 90 t2 00

2. Cont Up Trend

Longs: hold 00-85 t 63.19, bac 19 t 30 bac 30 t 39 t2 51 t3 59-64 t4 68-72

3. T/C to down

Shorts: bac 62.59 t 62.50 bac 50 t 42-33


10th April 2017 – Bund Daily Trade Plan

10th April 2017 – Bund Daily Trade Plan

News

1400 FR AUC 1400 EZ CONST

Previous Day – Range day with strong down close, into d.sz (62.70-63.19)and possible rejection. (bac 62.550 and 62.15 for t 61.50)

Big Picture

60m – Up TR, Hold 62.42-62.32 and bac 62.04 for cont. (Pbip)

10m -Down Tr, hold 62.80-90 bac 62.50 for cont

Context Play

1. Balance

Longs: hold/bof (62.50) 62.42-32 t 60-68 bac 72 t 62.85

Shorts: Hold / bof 62.85-63.04 t 60 t 42-32

2. Cont Up Trend

Longs: hold 62.60-50 t 62.80-90 bac 85 t 92.96-05 bac 05 t 63.19 bac 19 t62.38 t2 63.40-51

3. T/C to down

Shorts: bac 62.32 t 62.19-13 bac t 62.02 bac 62.02 t 67.77 t 61.50

29th March 2017 – Bund Daily Trade Plan

29th March 2017 – Bund Daily Trade Plan

News

UK BREXIT 1500 US HOME SALES 1530 US CRUDE

Previous Day – 2 X BePin, tst of d.sz at 60.90-61.51 (FTB) LOW AT 160.14 BAC T MCPOC 59.58

Big Picture

60m – Neutral TR, POSS T/C (LH @60.71) hold 60.71 and bac 60.14 for t/c to down

10m – Down TR, hold 45-55 bac 60.23 for cont

Context Play

1. 10m TR Cont

Short: bac 14 T00 t2 84-73 bac 73 t 63-58

2. 10min pb to test y.bal va (inplay?)

Long: hold/bof 24-14 t 38 t2 45-53

Shorts: hold 45-53 t 30 t2 24-14 (watch for bof)

3. Balance

Long: hold 24-14 t 38 t2 45-53 bac 50 t 60-71

Short: hold 60-71 t 45

28th March 2017 – Bund Daily Trade Plan

28th March 2017 – Bund Daily Trade Plan

News

0800 +1245 ECB COEU 1330 US GTB 1500 US CONS CONF
1750 US YELLEN

Previous Day – BePin day with strong down close, tst of d.sz at 60.90-61.51 (FTB)

Big Picture

60m – Neutral TR, bac 60.01 or 61 for direction

10m – Down TR, hold 60.48-60 bac 60.23 t 60.15-07

Context Play

1. 10m TR Cont and then Bal (could be choppy 47-15)

Shorts: hold 60.48-.60 t 60.23 t2 60.18-07

Longs: hold 60.18-.07 t 60.45

2. 10min cont down and 60 t/c back into prev bal VA

Shorts: bac 07 t 90-80 t2 73 (watch for BOF) bac 73 t 59-48

3. Rej of prev bal and test of daily s.z (2tb)

Longs; bac 48 t 60.60 bac 60 t 60.66-74 bac 74 t 60.90-61

24th March 2017 – Bund Daily Trade Plan

24th March 2017 – Bund Daily Trade Plan

News

0745 FR PMI 0830 GE PMI 1230 US DUR GOODS
1345 US PMI

Previous Day – Range day with neutral down close l at 59.88

Big Picture

60m – Neutral, for t/c LH 10-26 and bac 88

10m – Down tr, for cont, hold 10-15 and bac 88

Context Play

1. 10m TR cont

Shorts: hold 09-16 bac 88 t 79 bac 79 t 65 t2 57-48

2. 60min PB and LH

Short: hold 23-26 t 13 bac 13 t 97-88

3. Bal

Longs hold / bof 88-79 t 09-16, bac 16 t 23 bac 23 t 34-38

Short hold 38-47 t 23 t2 15

23rd March 2017 – Bund Daily Trade Plan

23rd March 2017 – Bund Daily Trade Plan

News

0700 GR CONS CLI 0930 UK RETAIL 1245 US YELLEN
1400 US NEW HOME 1445 EZ SPKER

Previous Day – Up day with strong up close, T 45/87/61.29

Big Picture

60m – Up trend, @ Va extreme of bal 60.66-58.73, for cont hold 59.96 bac 60.45

10m – Up trend / balance, for cont hold 60.13 bac 60.33/45

Context Play

1. 10min cont

Long: hold 60.13 bac 60.33 t 60.45-50 bac 45 t 60-66 (watch for bof) bac 66 t 82-00

2. Balance

Short: hold / bof 27-33 t 15

Long: hold 04-96 t 15

3. PB to previous bal at 79

Short: bac 96 t 88 t2 79

Long: hold 79 t 88 t2 96 t3 13

22nd March 2017 – Bund Daily Trade Plan

22nd March 2017 – Bund Daily Trade Plan

News

1035 EZ AUC 1130 EZ ECB 1400 US HOME SALES
1430 US CRUDE

Previous Day – Range Day with v.weak down close x 2

Big Picture

60m – Neutral, bal 59.96-59.09 bac for dir (poss bigger bal forming at 60.45/66-58.73

10m – Neutral, bal 59.66-48 for dir, poss bear trap at 48

Context Play

1. 10min Bal BU

Long hold/bof 48 t 60-66 bac 66 t 76-84 bac 84 t 96 (bof?) bac 96 t 60.21 t2 38-45 (bof)

2. 10min Bal BD

Short hold/bof 66 t 50 bac 48 t 35-30

3. Balance

Short hold bof 96 t 85 t2 57

Long hold bof 20-09 t 50-57