Strategy Goals

A part of my swing trading strategy that I learned in the seminar I attended in the summer of 2006 that I've actually retained is the 5% rule. I think this is the most valuable bit of information I've been given and I've not wavered since I started trading. I may not reach my goal every time I trade but it certainly steers me in the right direction.

Every time I get in a trade I tell myself that my goal for this individual trade is 5%. Now, some trades could easily yield 10 - 15% in a week's time but you can never know in advance what it's going to do. You also don't want to be greedy, telling yourself you could make much more once it has already reached your goal almost always backfires. Giving yourself a reasonable goal helps you think straight and stay disciplined once you've already purchased the stock. So, think 5%. 5% is all you need to be satisfied - that's more than the average bank account would give you in a year on that same amount of money.

My monthly goals are the same - 5%. Each month I aim to earn 5% return on investment on the entire balance of my trading account. Again, that's more of a return than a bank would give you for 12 months.

Let's do some math and see how beneficial 5% a month can really be:

Initial Account Balance on January 1st: $10,000

$10,000 + 5% return = $10,500

$10,500 + 5% return = $11,025

$11,025 + 5% return = $11,576

$11,576 + 5% return = $12,155

$12,155 + 5% return = $12,762

$12,762 + 5% return = $13,400

$13,400 + 5% return = $14,071

$14,071 + 5% return = $14,774

$14,774 + 5% return = $15,513

$15,513 + 5% return = $16,288

$16,288 + 5% return = $17,103

$17,103 + 5% return = $17,958

By the end of December you'll have $17,958 - a return of almost 80% on your original account balance of $10,000. Being reasonable with your trading goals and your monthly goals can really pay off by year-end. Just remember to stay disciplined and stick to your plan.