Keeping a Trading Journal is Crucial For Every Single Trader:
It may seem lame or unnecessary, but maintaining a Trading Journal is a critical component for every individual who wants to achieve sustained success in the markets. The transaction history that your broker provides simply isn’t enough. All that usually contains is data such as time of entry & exit, number of shares traded, and ticker symbol. This information is certainly important, but the real substance is in your own thoughts. Why did you enter/exit the trade? What was your thought process? Did you have a plan? Did you follow that plan? What were the overall market conditions prior to entry? All of this information needs to be inputted manually. The importance of documenting your own emotional psychology and any other relevant information that provides context for each trade you make should not be underestimated. Failing to document each trade properly provides zero help when it comes to improving the execution of future trades and overall results. And this isn’t a one-time exercise meant for beginners, it’s ongoing for traders of all experience levels.
The task of keeping a journal with all of this information may seem daunting, but the long-term payoff can be extraordinary. A great deal of useful information can be obtained from your recording efforts. When you reflect back on a week, month, quarter, or even a year of trading (with detailed notes on technical, fundamental, and emotional observations), there’s no doubt that you’ll learn a lot about your own psychology and overall approach. Instead of being oblivious as to why you’re experiencing the results you’re experiencing, you’ll be able to pinpoint tendencies, behaviors, and patterns (both in yourself and the markets) that you can utilize to refine your mindset and system. With the data you’ve gathered, becoming a highly profitable and consistent trader could boil down to simply doing more of what works and less of what doesn’t. But without that data, no such improvements can be made. Journals are only as good as what is written in them. Overall, a trading journal helps develop discipline, build confidence, and provide the valuable feedback required to continuously improve performance. No book, webinar, or mentor can do it for you – it has to be done on your own.
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I myself haven’t done any trading but I have read a couple books on it and some articles, but not one of them ever mentioned keeping a trading journal. To me this makes so much sense. I wonder why others don’t recommend doing this? Perhaps because they don’t do it themselves? If I or someone were to start up a trading journal what should I record in it? I imagine how I feel emotionally, would be one thing. What are some other things I would need to record? Hope to hear back from you.
Hi Chris. My guess is that a lot of traders don’t keep a journal because it takes time and effort to complete on a daily basis…and most people are lazy. It also requires you to face the absolute truth about your trading execution and results. This can be painful for some people because they might not want to rehash bad trades in which they lost money, but ultimately the process of reviewing old trades for inefficiencies and mistakes is what will lead to better trading in the future. It’s a critical step for every individual trader’s evolution. There are a number of reasons why most traders fail and this is a major one, but it’s relatively easy to do.
The basic information that should be recorded in a trading journal is the ticker, number of shares, and time of entry and exit. From there, you should try to be as specific as possible in detailing why you chose to enter or exit: Were you playing a specific chart pattern? Did any macro-economic news hit the markets? Where are the support and resistance levels? Are you feeling dehydrated, hungry, and/or distracted? These are all important variables to document when making trades. Over the course of time (weeks, months or years), you may come to realize that only one or two of the chart patterns you play work reliably, only certain bits of news have a major impact on your specific trades, that taking care of your emotional and physical health helps you achieve better results, etc. Overall, keeping a trading journal is a task that requires discipline and refinement, and those two things can have a major impact on profits in the long-run.
I have been an active options trader for about 15 years or so, selling out of the money options that are about 45 days until expiration. Its a mechanical system that I have been using for about the last 5 or so. One of the reasons I think I have been so successful is because I keep a journal.
I keep a record of what I have traded and what kind of strategy I have used, and I have found that a non directional opinion seems to work best, for me anyway. One of the things my trader friends and I talk about is how you tend to remember your big losses, but forget about all the small wins that made you successful today. Using a log of your trades helps me remember.
Hi James – One of the things that I really liked about what you said is that your trading journal helped you discover what “works best for you”. That’s a really important concept for people to understand. Not everyone can be profitable utilizing the same strategy. There are numerous factors involved in producing trading results, such as risk tolerance, portfolio size, time availability, personal preferences, etc. The beauty of keeping a journal is that it helps each individual trader review and refine their own unique approach that works best for them.