Every educator worth their salt will tell you “It’s important to log your trades”, to keep a record of your trades in order to track your progress.
Almost all traders fail to heed this advice. In fact, of the traders I work with, I’d say that less than 5% actually keep a consistent trade history. It’s not just laziness at play here; there are practical reasons and psychological reasons that make keeping a journal a challenge.
Journaling isn’t something specific to trading; it helps with many endeavors - recording your food intake and exercise on a diet, recording your performance in sports. It helps in long term endeavors where you need to improve over time with consistent practice. Part of the benefit of journaling is tracking the results and monitoring the changes in performance but it also appears that journaling actually helps you to stay on track. Studies have shown that people on a diet that journal are far more successful than those that don’t. It’s as if the journal is your big sister looking over your shoulder keeping you in line
Before we consider the challenges, first let’s consider what information might be useful in a trading log.
Date, Time, Instrument – Seems like basic and obvious information. Time is very important, especially when compared to open/close times. A trade taken 15 minutes after the open may have a different hit rate from a trade taken one hour in. The last 15 minutes of a market display markedly different action than the middle of the day. You cannot ignore the fact that we have an Asian Session, European Session and US Session and that trading across those open/close times produces different action in certain markets.
The type of trade you took, the ‘setup’ – If you have a number of different ways or reasons to enter the market, some may work better than others. It makes sense to categorize your setups in order to be able to weed out or refine the ones that don’t work so well. Let’s assume that the ‘setup’ includes both the reason you enter AND the way you would manage out the trade, set your stops & targets.
The market conditions at the time you took the trade – Was the market in a range or trending? Was volume above average? Were correlated markets/market internals supporting the trade? Had news just been announced? It is very important to make a note of how volatile the market was as volatility tends to change throughout the year. Some setups may work better in slower periods. Perhaps using a measure such as ATR or the average amount of liquidity on the DOM or how much volume was trading.
How well you followed your plan - give yourself a 0-5 rating with zero being “totally random, off plan trade”. You may find that would do well if you didn’t keep hitting into the market when your ‘gut’ told you to. You may find that you entered the market well but saw a move against you and didn’t get out according to plan and “hoped” it’d come back. Give that a 1 rating. It could be that the off plan trades are your best but it’s imperative to be able to compare trades that followed your plan to those that didn’t.
MAE, MFE, Profit – MAE – Maximum adverse excursion AKA “How far did it move against me”. MFE – Maximum Forward Excursion AKA “How far it moved my way” and your actual Profit. If you are recording MFE, MAE, then you should record your profit in the same unit – ticks or pips. You may be scaling into or out of trades too, so you’ll need to record that info. Of course, it makes sense to also note the actual profit/loss in the currency you trade in too. MFA and MFE help you fine tune your stops & targets.
Notes – This is perhaps the most important part. How you felt about the trade, why you took it why you didn’t follow your rules. Stuff that can’t be encompassed in a statistical measure.
You could log other things but for now, let’s consider the list complete and consider why you aren’t actually doing it.
It’s a distraction – When is it best to enter this information? Well, the sooner the better, especially for the notes because that’s when the way you feel about the trade is clearest in your mind. So as soon as you enter, you can start to log the information. Trouble is; that’s also the time that you need to be most focused on managing your trade. The logging can actually interrupt the trading. Once you have breathing room in a trade you have more time to enter the details. The flip side is that if you don’t enter the information right away and leave it till later and the trade is a loser, you might just decide “this one doesn’t count” and omit it completely. You might forget key elements too “it kept coming back to 2050 and nobody wanted to sell there” – those key details are important. It’s better to get something down quickly, even if you come back and fill in more details later. Otherwise, there is a tendency to leave out the bad trades. This is the case, even though you are most likely the only person that will read the journal again afterwards.
You suck at trading – Tiger Woods didn’t get a hole in one the first time he hit a golf ball. Trading is a skill and very few people are great at anything when they first start. Any change you make to your trading will result in a certain amount of “suckage”. Any new setup you employ will take time to perfect. You need to be journaling your trading when you aren’t a great trader. It’s a tool for self-improvement, not an exercise in massaging your ego. So yes, you will invariably start your journaling process by writing down a lot of bad trades, trades where you simply got in because you were bored, setups that simply don’t work and trades you held onto when the market was obviously against you. There really is no fun in that. It’s like writing down “I suck” 1,000 times. But your journal is your friend, she’s just giving you a bit of tough love, she will keep you on the straight and narrow if you persist.
You are too busy trading – You don’t have time for it. You are entering trades every 3 minutes when you trade, you also have a full time job and your wife is nagging you to change the light bulb in the toilet. There are a many people that are addicted to trading. I remember one trader mentioning that he had his trading PC in his bedroom and if he woke up in the middle of the night for a call of nature, he’d check his positions. This is not healthy. The simple answer for those that feel journaling is an intrusion on their trading time is “spend less time trading”. It’s far better to trade a little less but give yourself chance to improve than to trade all your spare time without taking a step back and review.
Once you have your journal, you can use it to assess your progress. The more tech savvy might write up a program or spreadsheet to crunch the journal data. There are also journaling tools out there. Personally, I’m happy to spend a few hours reviewing the journal I keep in a notebook. I trade futures contracts and there’s a new contract every 3 months. For each new contract, I start a new notebook. I usually keep my journal to 1 page a day and I can go over the 3 months trading in a couple of hours. If I notice a period where my performance has been poor, I can then try to figure out why that is and if I need to make any adjustments.
For those of you that are not yet profitable, a simple notebook and a little commitment might not make you profitable but it WILL help you understand what is working for you, what isn’t working for you and where you need to focus. Actually acting upon that information is the next hurdle.
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