Journaling trades may not quite mesh with images of rock star active traders making huge bets based on the latest cutting-edge research and raw gut instinct, but in reality, it is a critical part of developing the fundamental trading skills that lead to consistent success.
Without a detailed journal of past trades, it is difficult to identify the sources of your successes and failures, which makes it hard to learn from your experiences.
What to Track
Essentially you want to be able to identify certain patterns to your trades based on how successful they were. To achieve this you need to be able to identify the trade, evaluate its level of success and understand your thought process at the time of the trade.
Therefore, each entry should clearly identify the details of the trade, measure how successful the trade was and have a short entry that succinctly describes what you were thinking as you entered and exited the trade.
At a minimum, each entry in your trade journal should cover the following points:
- entry price
- exit price
- market condition
- thoughts on entering
- thoughts on exiting
Once you have the information in your journal, it is time to put it to use. The purpose of journaling your trades is to be able to go back over the information to identify your strengths and weaknesses. What was your thought process during successful trades?
What were you thinking during your failures? You will quickly identify patterns that will show you what you are doing right, and need to do more of, and what you are doing wrong, and need to do less of. Knowing your strengths and weaknesses is the first step to improving your trading skills.
Obviously, it is what you were thinking at the time of trading that is valuable when it comes to journaling your trades. The whole purpose is to have a solid record of your thinking process so that you can take a critical review of what goes through your mind as you day trade.
Even the most experienced traders know that their thinking behind a particular trade will quickly fade into the background as the next trade begins, which means that you will lose the opportunity to learn from your past experience as you adjust to each new trade.
Therefore, it is essential that you quickly jot down the thought process behind each trade before that information is lost forever.
Skill as a trader is all about how you process the information that is presented to you and how you deal with the results of your actions. The greatest traders are more monk than a scientist, and it is this constant effort at self-reflection and criticism that allows successful traders to hone their skills and master the markets.
Keeping a journal of your trades that offers you a permanent record of your thought processes in the simplest and rawest form provides you with the material that you need to constantly review, revise and improve your thought process while you trade.