Today I want to discuss why it is necessary for every serious trader to keep a detailed trading journal.
Skilled trading requires taking high probability setups with good risk/reward. For this reason, traders need to keep detailed statistics on their trading to make sure they are, in fact, taking high probability setups.
A great piece of software I like to use is called TraderSync. It has a lot of great features that saves a bunch of time, especially for active intra-day traders. But the point is to keep detailed records even if it is pen on paper.
Tagging Your Trading Setups
Every single trade a trader takes should have a detailed plan beforehand. It should lay out the fundamental or technical reasons for a trade, the stop, and the target. These trading setups should be given a name: bounce trade, flag pole consolidation, VWAP pullback, breakout, breaking news, gap and fail, etc. And detailed statistics should be kept on each of these different setups.
For example, in order to be a skilled trader, one of these must be true: your great setups must either be larger in quantity or in size than your poor setups. Usually, this means the great setups need to be held longer or must occur much more often. This is vital information that needs to be tracked.
Tracking Vital Statistics
TraderSync has a great feature where you can tag your trading setups and name them. This means that you can get vital statistics such as average hold time, average size, and frequency of good or bad trades, as well as return on every varying setup you take. This information is crucial in finding which setups suit beginning traders. Traders should focus more on what works and less on what doesn’t. This can make all the difference between skilled and unskilled traders.
Moreover, it provides experienced traders with data on what is working well and what is not in the current market climate. This can aid in making decisions on sizing. Deciding which setups are worthwhile increasing in size and which should be decreased should be based on analytics to improve the odds of things working in their favor.
Filtering Data
Being able to filter by date also provides data on the performance of certain trades over various periods of time. This is important in deciding whether to continue with a certain strategy if there has been a run of bad results or to discontinue it for a period.
Trade Reviews
Trade Reviews should be conducted daily, weekly, monthly, and yearly. Each of these time periods helps a trader prepare for the next time period. For example, daily reviews help traders prepare for the following day. A monthly review provides a zoomed-out perspective on what is working or not over that period. Yearly reviews put a year’s worth of trades and strategies into perspective. Repetition is the father of learning, and a trader must continuously hone their craft just like any professional athlete.
Psychology Journal
Furthermore, along with detailed statistics, a trader should keep a Psychology journal. It is important for a trader to check his or her temperature throughout the day. Fatigue, emotions, the weather, and a host of other factors can impact a trader’s decision-making and performance. Over time, a detailed journal will help traders recognize similar situations that have happened in the past and allow them to use this information to act in their own best interest. This can range from increasing and decreasing trading size to moments where it may be best to go for a 5-minute walk to clear their head as opposed to going on tilt.
Einstein once said that the definition of insanity is doing the same thing over and over again and expecting different results. A psychology journal can help traders get to grips with their emotions and understand how they affect their decision-making. This then allows them to make a plan as to how to best deal with the different psychological states that a trader will be in at different times.
Bottom Line
A trader needs to understand what works for them and what they do well. A detailed trading journal will provide evidence and statistics of exactly that. Not only that, but they also need to understand what is working well in the current market climate. Journaling allows traders to keep track of more recent results as well as, over time so that they can adjust their sizing and strategies accordingly. Great traders are constantly studying the market, themselves, and their trading to find areas where they can improve their skills.
