“The only real mistake is the one from which we learn nothing." - John Powell
“Learning is not a spectator sport” - D. Blocher
Dr. Brett Steenbarger has an outstanding article on the importance of keeping a trading journal and how it should be used as a tool to improve your performance. I have been writing a trading journal for two months now and I find it exceptionally useful. I thought that I might share the basic structure of my journal. It might be helpful to someone or I might receive a constructive feedback on it.
My trading e-journal consists of 4 columns.
In the first one I describe the trade I took. For example I just write: “long 400 AMZN @70.23” or “short 200 AAPL @115”. I also put the approximate time I initiated the trade.
In the second column I answer myself: why did I take that trade. What made me do it. Did I follow my trading strategy for the day/week or I just got excited and emotionally initiated a position. For example, your entry might consist of the following: entered on a pullback, stock was within 15% of all time high, market was picking up; or whatever entry criteria you have; I mention what was my exit strategy, when I initiated the trade. It is essential to know what triggered a trade and where would exit if wrong. If done often and long enough, it will become a habit.
In the third column I deal with the problem: what happened with the trade. Did I close it the same day and why? Did I kept it overnight and why? Did I make a profit or I lost?
In the 4th column I ask myself what did I learn today/this week? What did I learn from my profitable trades? How could I repeat them or make them even more profitable? What did I learn from my losing trades? How to prevent them from happening again? I am very specific in my thoughts.
Have an open mind and be ready to react to any situation. Keep in mind that in trading the inevitable never happens and the unexpected constantly occurs.
9 Comments:
I need to know how the photos relates to this article since my mind is hurting trying to make sense of it all!
Alan, don't over-think it so much. The pic is there to cheer you up; raise the level of your testosterone, which is proven to boost the trading performance:)
Dude..its a pic of a very talented young lady updating her trading journal.
Great article
Great article, I have been doing the same for over two years now. But you gave me some ideas to tweek my journal.
Thanks Ivanhoff.
Thank you for the idea. It helps me to figure out the specific items in the journal which I was thinking about after reading Dr. Brett Steenbarger's article.
Rainbow
4 columns are not enough. All numerical data should be in separate columns so that you may run a statistical analysis of your trades: Win ratio, payoff ratio, average loss, average win, time of day or interval when trading is more succesful, etc. Comments are nice but numbers go straight to the point.
You need to identify your exit strategy when you place the trade.
My trading mentor let me know what kept him on his toes after all the years of trading.
He explained to me that his first goal was always asset protection. Because of this, he would set a maximum draw-down for the month. Let's say that this was 5%. The moment he hit the 5% draw down for the month. He stopped trading for the month. He went a few steps further. He then broke this down to a weekly and daily draw down tolerance.
So, if he was managing a $5m account and his tolerance was 5% for the month, he was able/willing to put $250,000 at risk for the month. If he hit a loss of $250,000 on the second day of the month. He was done trading for the month. On top of that, lets say there were 4 weeks in the month, each with 5 trading days. His risk tolerance was $62,000 per week. Whenever he hit that level during any week, it was his rule to stop trading. Likewise, he was able to lose up to $12,500 per day. If that happened in the first hour, third hour, whenever. He would stop trading.
He was a very disciplined trader. The secret to his discipline, he told me, was the fact that he loved to trade. Having to stop for the day, week, or month, was a significant negative consequence.
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