The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
8 Steps to a Better Trading Journal
05/28/2014 6:00 am EST
When you have and use a tool that scrutinizes your daily activities and keeps your focus on the long-term plan, you will find that success in trading will come naturally, says Casey Stubbs of WinnersEdgeTrading.com.
Before you even consider making your first trade, you should have already started a trading journal. Having a written journal of all of your trading activities will give you the confidence needed to execute your trading plan. While it may be true that your broker is keeping record of all of your trades, he has no idea of your thought processes that brought you to make those trades in the first place. It is up to you to track the why and how you made important trade decisions in order for you to be able to use your own journal as a reference guide.
The first page of your trading journal should be your long term plan. What do you hope to accomplish over the course of your trading career? What is your monthly goal? Yearly goal? Make a bucket list of items you hope to acquire as you increase your wealth. This page is not etched in stone, and it is yours so you can freely change or make updates as your trading business progresses. The idea is to have something tangible to refer back to that can help you keep your eye on the prize as you begin to flourish and grow as a trader.
Don’t Copy Off the Next Guy
Your trading journal is like a diary, and should reflect only what is pertinent to your trading business. Only you know what you value and what makes a difference in your trading decisions. I know one wildly successful trader who swears by the weather. Every journal entry contains a detailed description of the weather conditions for that day. For a while I thought maybe that was the key to all trading success and tried it out for myself. What I found out was that for me, rain or shine made no difference in my trading habits so I stopped bothering with it.
There is no point in keeping a trading journal if you don’t look back at what you wrote. These are not just random thoughts that you write down and then can forget about. If you aren’t referring back to your trading journal then you may as well toss it to the wind. My morning coffee isn’t spent with the daily newspaper, but with my trading journal. I look over the notes from the days, sometimes weeks before, analyze them, and then begin to map out my plan for today. This gives me the confidence to enter the trading day completely prepared for whatever may happen.
History Repeats Itself
As your trading business grows into months and then years, your trading journal becomes a record of your performance as a trader. Depending on the data you choose to collect, you should be able to look back and see what types of trades yielded you the best results. Remember that as you move forward, your account is growing, which means the amount of money involved in your trades is growing too. When you are tallying up results, don’t rely on the base numbers, but rather convert them into percentages. Percentages give a much clearer picture of the history of your trading successes and defeats.
NEXT PAGE: 4 More Steps|pagebreak|
Plan for the Future
Even if that future is only two hours away. Traders talk at length about the need for a trading plan. Your journal is the ideal spot to map out your plan each day. On the side be sure to include any and all criteria that are affecting your choices for that day. This gives you a map to follow when you are unsure of how or why a trade did not go the way you thought it would. What data was missing in your notes? What was different on that day compared with other, successful ones? Having your plan and outcome in the same place makes it easier to track your performance and learn from your mistakes.
Change Your Habits
It’s easy to forget defeats and what led to them when you don’t have a written record of how they occurred. The trading journal allows you to track patterns in your transactions so that you can learn from your mistakes and modify your plans. It is easy to blow off one bad trade as a fluke, but with a journal as proof, you won’t be able to deny making the same errors repeatedly and will be forced to modify your plans to better suit your trading style.
Consistency is Not the Key
The only thing with your trading journal that you need to be consistent with is using it, both to record and read. The entries themselves can evolve over time. Intel that was seemingly important to your trading choices yesterday may not affect your decisions next week. It’s okay to modify your trading journal as your skills grow, so long as the modifications are improving your performance. When you are tracking results though, make sure you are grouping them together according to the strategy that you used. It will be hard to get a clear picture of which strategies showed you the best numbers if there are too many different variables to consider.
Be Hard on Yourself
The trading journal is only as good as how you use it. Don’t just analyze the bad trades to see where you went wrong, but look at your successful ones to figure out how you could have done even better. You are your own number one critic, only be constructive with the flaws you find to better aid you in the future. In the early days of your trading, victory is not just seen in numbers. Consider yourself a winner if you were successful in executing your plan the way it was laid out, following through on the parameters you set, and holding yourself to your targets.
Every few weeks, I refer back to that first page of my journal to see how close I am to achieving those long-term goals. Hopefully you do the same, and will be able to mark off items on that bucket list the same way I am able to. When you have and use a tool that scrutinizes your day to day activities as well as keeps your focus on the long-term plan, you will find that success in trading will come naturally.
By Casey Stubbs, Founder, WinnersEdgeTrading.com
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...