Without knowing this answer you will most likely struggle as a trader. Part of the problem lies in how we’ve been conditioned, we want things right here and right now. We hear how the market has rallied 50% and we beat ourselves up because we missed the move, or on the other side of the spectrum the market may have fallen 50% and we look at ourselves and we are so proud that we were only down a portion of that. This line of thinking is both wrong and harmful.

We would argue that you should not even compare yourself to an index, but rather you should have established a set of goals for the week, month, year, etc. and these goals should be your target (soon we will release our views on how a trader should create realistic goals).

So let’s take at a sampling of trading styles and see if we can narrow down our expectations (our sample will focus on futures):

• Day trader- Day traders are looking for small to medium price movements throughout the day, the underlying major trend of the market should have no bearing on their decision to go long or short. The trend they are concerned with is the fifteen minute trend and perhaps even down to a smaller scale.
• Swing Trader – Swing traders are looking for perhaps 20-30pts move in the underlying index they are following. The trend of the market becomes a little more relevant but they are still able to go long or short due to retracements of the major trend falling into the 20-30pts realm.
• Position Trader – Position Traders are looking for 30+ points. They are more concerned with the underlying trend of the market as they will be adding to their positions on pullbacks and scaling out on advances, assuming the trend is up.

So in the above examples we have three different styles and each style is capable of producing profits. Where traders get into trouble is when they begin mixing styles. Let’s discuss what we mean by trouble by going over a few points.

Day traders are looking for precision entries and exits, the problem is that they are focused on smaller time frame charts so there is a high probability they are trading in the middle of a range where their entry was good on one day but if they held for an extended period they could take serious losses.

Potential conflicts – Daytraders who do not honor their stops can have their losses get out of hand especially if they are not identifying support and resistance on the larger time frame charts.

Swing Traders need to be more concerned with where the market is in within its range on the larger time frames (hourly, daily). Entry is important, but they have to be careful to not be as precise as day traders or they may miss the entry and they may not have another opportunity for a few days or weeks.

Potential conflicts – Swing traders that are looking for precision entries like day traders or using tight stops like day traders. Either they will miss the trade all together or they will continually be stopped out of their trades. Also they cannot take profits to early or their risk/reward profile will be out of whack.

Position Traders like we mentioned earlier are most concerned with what the underlying trend of the market is. They should be using swing trading methodologies for their entries and exits and but they must be aware that since they are holding for a longer time period the drawdown’s can be large and if their analysis was incorrect they will be taking the largest losses

Potential conflicts – Taking profits to early. They are putting themselves at the most risk and they will need to be compensated for that risk

So after analyzing the above information the way to decide what type of trader you are should not be on what type of gain you are hoping for, but what type of losses are you able to handle.