The #1 reason traders fail is due to lack of experience. The best way to speed up your learning curve is to keep meticulous records using a trading journal. In this article I will give you ideas for setting up your own trading journal as well as examples from my own.
The business of trading is filled with some of the brightest minds in the world. These veteran traders have 10, 20, and 30 years of experience trading the markets. How do you become one of them? Trade to trade well and the money will follow.
Whether you choose to journal by pen and paper, on the computer, by audio recording, or through video screen captures your objective is to identify mistakes and develop ways to avoid the same mistakes in the future. The ideas discussed here can be used as a framework to get started. Be creative and adapt them to your own style, there’s no right or wrong way to journal.
Creating Means to an End
The first think you must do before creating a journal, before placing a trade, even before learning about the markets is to pull out a piece of paper and write down your answers to the following three questions.
- If you had unlimited supply of money, what would you spend your time doing, and who would you spend it with?
- What will happen to you 20 years from now if you do not learn the skills necessary to become a successful trader or investor today?
- Why trading? Given the four basic ways to make money (employee, self-employed, business owner, and investor) why do you want to be a trader?
Spend some time thinking about your answers and reasons behind them. It may seem like a silly exercise, but you really must start from a top down, holistic approach if you are going to succeed as a trader over the long term.
The Benefits of a Journal
The benefit of using a trading journal is to build confidence in your trading system. You are the most objective when you have confidence in your trading setups and methodology. In taking meticulous notes and recording the conditions surrounding your trades you will find see trading improve over time.
Some important things to note are your emotions as you enter the trade, during the trade, and at ext, outside market forces, why you decided to exit when you did, etc. You can then determine profitable habits and discard the harmful ones.
Tools for Your Journal
Jing – If you’re a visual learner this is a great tool. Jing is a great tool that allows you to screen capture images and videos. You can then make notes, and document right on the chart itself.
Microsoft Excel – For mass data analysis nothing beats Microsoft Excel. I choose to use a combination of handwritten notebooks and Excel for my own trading journal. If you’re not tech savvy or simply wish to use prefabricated excel templates I urge you to check out Greg Thurman’s Trading Journal Spreadsheets.
StockTickr – A third option for documenting your trades is with the online platform StockTickr. They have a lot of useful tools as well as different level package options to choose from.
A Look at My Trading Journal
Now that you have some ideas on how to get started I’d like to share with you how I organize my trading journal(s). Like I said, I use a combination of handwritten notebooks for my emotional and daily market notes, and Microsoft Excel for the analytics and trade analysis.
All my excel templates discussed below can be found here.
Feel free to tweak them and make changes as you like. If you have questions go ahead and leave them in the comments section below as often times many readers share the same questions. I will respond to all questions.
I use this spreadsheet for recording and tracking the effectiveness of my individual setups. I break out the setup and win percentage to see which markets and setups are working the best.
Things I Learned: After a few weeks of inputting trades it was really clear that some of the smaller time frames I was trading were not as profitable as the 15-min time frame. In some cases, these smaller time frames were my only losing trades for the week. The result, I went back and tweaked my entry for these setups and reduced the number of contracts I was trading for the smaller time frames which minimized my losses and increased profits.
Have you made money at the end of the day? This is the bottom line report.
Things I Learned: This spreadsheet keeps track of my individual p/l each day, number of trades, and commission expense. I also track my progress over the month in chart form. One particular discovery was that my biggest days were sometimes the days with the fewest number of trades. It also made it clear that a typical month is made up of a few big winning days, a number of average winning days, and only a couple small down days if any.
On days when the market is providing quality setup after quality setup I continue to trade. Days where the market is slow and I have a couple scratch trades with no follow through I usually lock in gains that I may have and stop trading by noon CST.
This is my go to spreadsheet that I use every day. It began as a handwritten piece, but after drawing the same boxes and grids day after day I moved it into excel. In the beginning I would record the market internals every 30-mins, I have since added a code in my Thinkorswim platform that tracks this for me. Here’s the link to that Thinkorswim code.
Things I Learned: This spreadsheet acts as a checklist. I fill it out each night for the following day. During the trading day I record my individual trades on this sheet as well, then input them into the Trading Log at night.
This is the Mack daddy of spreadsheets.
I record all my market data here. It may be a little overwhelming at first, but after years of recording this data each night it becomes pretty easy to spot patterns and trend changes.
Things I Learned: I look to the market internals each day to really gauge the strength or weakness of the market. This spreadsheet has helped me uncover very interesting patterns and occurrences. These indicators are also talked about in the book Mastering the Trade by John Cater.
End of Day Questions
At the end of the day asses your trading by asking yourself the following questions…
- Did I follow my rules?
- Did I take all the valid setups?
- Did I hold to my targets?
Review the setups for the day and congratulate yourself if you followed your rules, took all the valid setups, and held to your targets. If you operate in this way, the money will follow as I can personally attest to.
Since incorporating these journals into my routine back in 2007 I have been able to increase the efficiency of my strategy and continue to become more profitable each year.
By Tim Racette