The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success

2.3. CASE STUDY ON HAVING A VARIANT PERCEPTION

Having a unique and differentiated idea is critical for succeeding in terms of goal achievement. But this goal-setting must be defined in terms of specific trading metrics, such as having a favorable winning percentage of trades (ideally 60 percent winners) and a positive W/L or slugging ratio (the average amount of money made on winning trades divided by the average amount of money lost on losing trades).

In order to do this, it is essential to set specific targets, breaking the overall goal into monthly, weekly, and even daily targets. As you break down your target, you have to figure out what is needed to reach it. If you are typically making X amount of money, what specifically can you do to increase that amount? Unfortunately, most people are not structured to achieve these kinds of higher rates of return. Listen in as I discuss these issues with Donald, a top-flight hedge fund manager who articulates these issues with clarity.

Donald:

My goal in portfolio management is not to be the smartest or the most knowledgeable guy. It is to make money.... The key to this is to ensure that my daily actions and the decisions I am making about timing and the sizing of positions correspond with my goals. Most of the time, people just throw together a portfolio, and the rate of return at the end of the year is an output. They weren't really trying to manage a specific rate of return. The key to goal-setting is to decide on a specific target. ...