A trader’s most valuable tool is not a type of software nor an online ‘service’. It’s simple, and it’s free. You can create one using a pencil and a notebook – a trading journal.
Keeping a trade journal tracks what you did, why you did it and how you managed it. If you are honest with yourself, your personal journal will help you understand your trading style – why profitable trades worked and unprofitable trades did not. It will also tell the story of your evolution as a trader – what you have learned as well as discarded.
Let’s admit it. We’re only human and subject to emotions that can cause us to make careless mistakes. A trade journal can help you develop a systematic approach that is likely to help you stay more focused, more relaxed and avoid impulsive decisions. You will also be forcing yourself to justify your trades. At a minimum, a trade journal should record the following:
- Everything that motivated you to make the trade – Technical, fundamental, news, a guess, hunch, etc.
- If you’re an options trader – why you picked a particular strategy.
- How much capital you are willing to risk – get an idea of how bad the trade can get.
- A management plan – where, when and how you will take action (critical for options traders).
- Trade entry – date, time, prices (for options traders, price of underlying and Implied Volatility).
- Other relevant information and dates – Earnings or other announcements (FED, GDP, etc.)
- How you ‘feel’ – it’s okay to admit you’re uncertain, but record why.
- Any time you make an adjustment – what caused you to take action, even if emotional.
- Trade exit – Record information as in #5 above.
- REVIEW – “Those who do not learn from history are doomed to repeat it!”
- How did you behave/feel at each stage of the trade
- Where and how do you believe the trade got off track
- Remember – Not all trades work out. It won’t always be your fault!
It may take a few tries before you settle on a “routine,” but the result will be invaluable.
Sincerest wishes for trading success.
