What’s so magical about keeping a trading journal?
It’s no accident that the most successful traders have a trading journal. With all the benefits involved, it’s a wonder why more struggling traders are slow to catch on.
There are no absolutes or right answers, but much of what gets recorded is quite personal. The personal nature of a trading journal can make us feel vulnerable.
But the use of this underappreciated tool can help you become successful in the markets. A trading journal is a powerful thing.
Here are 11 reasons why you should make your trading journal a priority.
Trading Journal – Reason #1: It will make you more profitable
Over time, regular use of a trading journal will help you become more profitable.
Trading journals are the hallmark of the successful trader. A great trading journal can improve your trading.
How? It works through the very act of journaling itself.
When you write down exactly what you think and do during your trading day, it clarifies things. Areas that are helping you profit jump out at you. So do areas that are causing losses.
If greater profits are part of your trading goals, maintain a trading journal. Write in it daily. And be honest when you do.
Trading Journal – Reason #2: It tracks your performance
Performance and performance tracking are the backbone of trading. Without tracking, the task of improving as a trader becomes more challenging.
How can you improve something you don’t notice?
Tracking highlights your performance and any areas that need improvement.
“Track everything in your trading to reveal true performance.”
So how should you track?
Ensure that your trading journal includes a spreadsheet. Spreadsheets help analyze performance in many ways. You can track things by week, month, year or even by the symbol traded.
Make sure you include tracking in your journal. See what you discover about your performance. The important things is that what we know about we can fix.
Trading Journal – Reason #3: It can help build up your routine
We are creatures of habit and routine.
Knowing this about ourselves can help improve our trading performance. We can use routines to our advantage.
Writing in a journal builds a powerful routine into your day. No matter what else happens, you have a space of time to write in your journal. This time can help to ground you when everything else is chaotic.
One of the big benefits in trading is its flexibility. It can also be a liability. Having a choice means that a trader always has the option to do nothing, or do too much.
Your trading journal will help build a routine that you can rely on into your day. The very act of maintaining your journal on a daily basis forms a strong habit. And this habit is one that supports successful trading.
Trading Journal – Reason #4: It can reveal your strategy’s strengths and weaknesses
Many strategies look fantastic on paper.
It’s an unfortunate fact that many of these are unable to stand the test of live market deployment.
Slippage, commissions and increased volatility losses can work against strategies that seem good. It can all look perfect on paper, but once applied to real markets the litmus test happens.
“Strategy strengths & weaknesses can not hide on the pages of a trading journal.”
So what can you do to make sure the strategy you choose is good on paper and in live markets?
A powerful way to reveal the realities of your chosen strategy is to keep an accurate journal.
Record what actually happens in live markets when you trade it. That way, you will reveal any issues and won’t get sucked in to trading a dud strategy.
Trading Journal – Reason #5: It can reveal your strengths and weaknesses
A strategy can produced awful results in the hands of the one trader yet succeed in the hands of another.
This isn’t to say there’s something wrong with the trader who gets awful results. It may be the case of a poor match of strategy and trader. The trader’s temperament, available time and skill set could have caused the conflict.
Jim Paul explained an important fact in his book “What I Learned Losing A Million Dollars.” He said that poor trading performance has only has 2 causes.
The two causes are:
- A flawed strategy
- The flawed execution of a strategy
How can you find out if it is the strategy or you the trader who need to improve?
The best way is to use your trading journal.
It is an important tool to make this evaluation. Your journal can identify your personal and strategy strengths and weaknesses. Then, you can match yourself with trading strategies that are the best fit for you.
Trading Journal – Reason #6: It can help validate your method
Your strategy and method in the markets is what makes or breaks your trading career. Yet many traders use strategies that are not 100% quantified.
What do I mean by quantified?
A quantified strategy is one that written down in exacting form in your trading journal.
Consider this example. If another trader read your journal, could they execute your strategy? Would it be specific enough for them to use? A quantified strategy has enough information written down that anyone could understand it.
“A trading journal forces to quantify your methodology.”
What you quantify, you can test. You can enter a quantified strategy into a computer to do automated back-testing on it. This is not the case if you are not clear on what your strategy is.
Quantify your trading strategy in your journal. Make it so clear and so exact that anyone who reads it could trade it. This clarity also gives you the power to test and improve your strategy and will help you succeed.
Trading Journal – Reason #7: It will help find missed opportunities
Missed trade analysis is as important as the analysis of trades that executed.
Trading strategies and plans often made with the benefit of hindsight. A trader’s inability to recognize opportunities in real time as the chart unfolds is a serious issue.
Analyze the trades that you made at the end of each session, and revisit your charts. Try to identify any opportunities that meet the requirements of your trading strategy. Did any of these get missed in live trading?
Also look for trades that don’t fit your strategy but that you took anyway. Note these findings down in your trading journal.
The notes you make will help you catch patterns in your behavior. Sometimes these patterns may be causing you to miss good trades. Other times they may be causing you to take ones that aren’t part of your strategy at all.
Your trading journal will highlight if missed trades are hurting your strategy performance. Make sure you log all trades – those you take, those you miss, and those that you shouldn’t have made. Then take action to improve in any area necessary.
Trading Journal – Reason #8: It helps you track, assess and modify your habits
As mentioned in Reason #3 above, habits and routines like the act of writing in your journal are important.
We are a collection of our habits.
It’s not enough to have only the habit of tracking our trades. We also need to track all our other habits. Qualitative considerations like this distinguish your trade journal from a simple trade log.
Buy price, sell price, profits and losses. They are all part of the set of important metrics that a trader should track in a journal. But the habits beyond your trading screen hold great value as well.
“You can’t change a habit you have not identified.”
Hunger, exhaustion, elation and excitement.
These are some of the qualitative sentiments you should record. Note things that affect your trading and your habits around them. What you discover may surprise you.
For example, if anxiety was the reason for a premature trade exit, write that down. Then if you are tracking everything, you may discover that you only have this anxiety on certain days. These days may show the habit pattern of being “three cups of coffee” days.
Well now you have a simple solution to reduce your anxiety. Cut back on the coffee.
There are so many things you can discover about yourself and your trading when you track every habit. Don’t discount habits that aren’t part of trading. What you do in the morning, how you sleep, how you eat all are the types of things that factor into your success.
Trading Journal – Reason #9: It can act as a planning tool
Planning is one of the most important steps to success, no matter what career you are in.
“Plan your work and work your plan.” ~ Napoleon Hill
Many traders go over their trades at the end of the trading day, yet they don’t go into enough depth. They categorize their trading as either “good” or “poor” and leave it at that.
This leaves off an essential element: using what you learn to plan the next day.
An effective approach is using your trading journal as a planning tool.
Note things you could have improved. Record what you think went right. Also, plan how you’ll make sure not to repeat the same mistake twice.
Those notes end up being a guide for referral during the next day’s trading session. When you start trading the next day you do so with a clear plan to improve your performance. That is powerful in shaping your long term success.
Trading Journal – Reason #10: It can catch hidden performance issues
What you don’t know about your performance can harm your trading.
The problem is, some of the most insidious issues we have as traders are not easy to spot. Each trader is unique. That means that each trader will have unique issues that aren’t covered by generic advice.
What can we do to uncover our hidden performance flaws?
Since each trader’s journal is as unique as they are, a trading journal is the key. A journal serves as a window into problems that would otherwise remain hidden. And once uncovered, problems can handled with better solutions.
“Your trading journal will highlight hidden performance issues.”
Uncover these non-obvious and counterintuitive considerations by keeping a thorough trading journal. The more details, the better the journal. You are a unique trader, and your journal can serve as your own custom-tailored window to success.
Trading Journal – Reason #11: It increases the benefit of your training
Trading coaches, trainers, mentors and courses.
All can be a great asset to your performance. They can also be a costly investment.
How can you maximize what you get from your education investments?
Your trading journal is the key to doing this. When you track everything and have detailed performance records, you improve your training.
Coaches and mentors may ask for your records. If you already have them, not only does it speed things up but it also gives them lots of data to work with.
Your journal also lets you track your own improvements. Writing down what you learn and how you will apply it helps lessons to stick. A journal can become your trading reference guide as you add more and more information to it.
Make sure you keep your journal, and use it during any trader training you take. Write down what you learn. Share your performance record with coaches and mentors.
It will help you learn more, better and faster.
For more day trading techniques, tools & strategies, check out these articles:
- 7 Essential Techniques For Pre-Market Trading
- Top 5 Tips For Success In Online Day Trading
- 3 Key Patterns For Technical Analysis Of Stock Trends
Keeping a trading journal improves your trading performance and skills. Too many traders overlook this powerful tool. Be different.
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