How to Set Trading and Investment Goals?

Curated By
Vivek Gadodia
System trader and algo specialist

Skill Sheet: What You Will Learn Here

  • Importance of investor goals
  • How to plan your financial goals or investment goals
  • Considerations for goal-based investing
  • How to make goal-based financial planning

Trading and investment are two different approaches to wealth creation. Trading is a short-term method employed by a trader to generate quick profits, while investing is a long-term method that helps attain predetermined investor goals. All said and done, goal-based financial planning does yield better results.

Trading involves maximising returns on short-term fluctuations in a short time, ranging from a day to a few weeks. Investing involves achieving goals by buying and holding securities over a longer time. Investing time horizons can extend from a few years or even a few decades. On the risk front, both trading and investing are not devoid of risk. However, trading is riskier than investing.

Setting trading goals 

Defining investor goals is important, whether it is trading or investing. The financial goals of an investor must be clear before charting the course of goal-based financial planning. Here are some steps to follow for goal-based investing:

  1. Plan financial goals. Write them down
  2. Put together a strategy basis your investment goals
  3. Objectively assess your skills, knowledge, strengths and weaknesses
  4. Determine the gaps between skills and goals and work on bridging them
  5. Figure out your investment goals keeping in mind your risk appetite
  6. Maintain logs of trades or investments to help you in the long run.


Trading, being a one-person pursuit, needs a lot of self-motivation and determination. One has to constantly push oneself by setting higher targets and trying to improve constantly. Along with well-defined investment goals, a positive attitude is a must for a trader.


Depending on investment goals, one has to set aside the required capital for trading. Capital required for trading can be subjective. However, one should not commit their entire capital to a single trading idea or strategy. It is advisable to have multiple trading ideas or strategies so that they are internally diversified. This is an important part of goal-based investing. Markets are ruthless, and if trades are not planned, one can blow their capital in a short time.


To avoid money being blown up, one has to incorporate risk management in trading. One way to mitigate risk is to assign only a certain percentage of the total capital allocated to a trading idea or strategy. It can be between 2-4 per cent of the capital per trading idea or trading strategy. For larger-sized accounts, this value can be as low as 0.25% of the capital, it is completely dependent on the trader’s or investor’s stomach for accepting risk. 

How to Set Trading Goals

What to trade:

Depending on securities, one can allocate capital and take risk measures. If it is in stocks, one has to commit a larger capital per trade, and if it is futures or options, the capital can be relatively smaller, but the risk can be higher.

Time frame:

This hinges on the investment goals. A daily goal would entail day trading. If a weekly or monthly goal is set, one can set returns accordingly from positional trades. One important thing to remember here is the financial goals of an investor must be realistic. Expecting all trades to be winners is like expecting the sun to rise from the west. Losses are part and parcel of a trader’s journey.

Trading goals:

Trading goals cannot be compared with benchmark indices as benchmarks work like a model portfolio. However, it is essential for a trader to set a realistic profit or return. A percentage of capital employed is a preferred way of setting a goal. For example, a monthly target of 3-4 per cent is quite realistic. Aggressive traders set higher goals, but it can be risky. It is prudent to set realistic, achievable goals and then to expand those goals as one makes progress with time.

Setting Investment goals 

Goal identification:

Investment must begin only against a specific goal, which is to be achieved over a period of time. Any investment without a specific goal is just stock picking that gives a feel-good factor. Such investments may or may not make quick money.
There are two types of goals:

  • Long-term investment goals such as creating a retirement corpus, education, planning a family, higher education
  • Short-term investment goals such as buying a car, taking a vacation

Time horizon: Mapping goals in short, medium or long-term time horizons will help in applying the right strategy to meet the financial goals of an investor. Short-term goal-based investing can have a time horizon of fewer than three years, while a medium-term goal's time horizon can range between three to 10 years. A long-term goal’s time horizon can be a decade or more.


Strategy can be planned based on the time horizon of an investment goal.

  • For short-term goal-based investing, capital allocation can be based on a mix of liquid investments, money market instruments, liquid mutual funds or liquid exchange-traded funds (ETFs). Capital preservation is important. Therefore, investments in liquid instruments are safe.
  • Medium-term financial goals of an investor are relatively longer, and even if there is a short-term blip, there is time to recover. Therefore, a mix of high-quality fixed-income instruments or fixed mutual funds, or investments in stocks or equity mutual funds can be employed.
  • For the long-term, one can plan financial goals that employ a more aggressive mix as time is a friend here. The product mix can be aggressive in favour of equities or equity mutual funds and ETFs.


One needs to monitor investments on an ongoing basis and make changes as and when required. Many websites provide portfolio-monitoring services for free, while some charge fees to help monitor their clients’ investments.

Points to remember:

  • Investment goals enable investors or traders to strategise and avoid impulsive tendencies.
  • Goals are achievable by applying the right strategy and constant monitoring.
  • Determination, dedication and constant learning is the key to success.
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