“What is not defined, can not be measured. What is not measured, can not be improved. What can not be improved will always degrade.”— William Thompson Kelvin
Bruce lee maintained neat and meticulous journals throughout his lifetime.
A professional bodybuilder tracks his calorie intake, the weight he lifts and his fat percentage.
The scientists journal their experiments, findings, and any practical deviations observed from theory.
A professional sportsperson maintains a journal for his gameplays and his thought process.
But here it gets surprising. Most retail traders aspire to achieve the success of professional traders but almost 95% of them don’t maintain a trading journal.
Perhaps most traders don’t know how to maintain a journal and why it is paramount to maintain it. Well don’t worry here we will discuss step by step how to maintain a trading journal.
What is a trading journal and why you should maintain one
A trading journal is a trading diary which records all the details of trades being carried out. Your ability to be honest with your trading journal and record complete details of your trades will ultimately decide whether you will be a successful trader or not.
Trading journal helps you identify your weakness and strength
A trading journal is a tool that allows you to track and record your trades, including the entry and exit points, the size of your position, the reasoning behind your decisions, and the outcome of the trade. Reviewing your trading journal regularly lets you identify patterns and trends in your trading behaviour and make adjustments to improve your performance.
For example, if you notice that you tend to hold losing positions for too long, you can work on developing better risk management strategies or adjusting your exit criteria. On the other hand, if you find that you are consistently profitable with a certain trading strategy, you can focus on improving your execution and optimizing your approach.
It helps you manage your emotions and maintain discipline. By recording your thoughts and feelings during each trade, you can gain insight into your psychological tendencies and work on developing a more objective and rational mindset.
Trading journal helps you find your edge in trading
Finding an edge in trading is essential to achieving long-term profitability. A trading journal allows you to record your trades and analyze them in detail. By reviewing your past trades, you can identify which trades were profitable and which ones were not. You can also analyze the reasons for your success or failure in each trade. This information can help you identify your strengths and weaknesses, and develop a strategy that works best for you.
Furthermore, a trading journal can also help you identify patterns in the market that give you an edge. By tracking and analyzing market conditions, you can develop a trading plan that takes advantage of these patterns.
Trading journal helps you identify your risk tolerance and optimal position sizing
Trading in financial markets involves taking risks and managing those risks is crucial to success. Before entering into a trade you are going to define a stop loss, based on this difference between the current stock price and stop loss you can calculate your optimal position size for entry.
Later if the stock goes up you can increase your position size (Average up) and if goes down you should exit when the stop loss level hits.
If your stop loss levels are being hit repeatedly, you should consider reducing your position size and reviewing your trading strategy.
Optimizing your position sizing can have a significant impact on your overall profitability. If you are taking too much risk, you may experience large drawdowns that can wipe out your trading account. On the other hand, if you are taking too little risk, you may not be maximizing your potential returns.
How to create a trading journal
Creating a trading journal is a straightforward process that can be customized to suit your trading style and needs. you can keep your trading journal in a physical notebook, a spreadsheet, a google sheet or a specialized trading journal software. There are many options available online, some of which are free.
Which parameters your journal should contain
Here are some parameters which your journal must contain:
- Entry date: the date when you enter a trade
- Stock name: stock in which you are trading
- Entry price: the price where you initiate buying
- Stop loss: Predefined price level where you will exit the position if it moves against you
- Reason: reasons for entering this particular trade
- Time frame: The time frame in which you are trading. It could be 15 min. Chart, hourly, daily, weekly, etc.
- Position size: ratio of the amount you invested in this particular trade to your portfolio size.
- Exit date: the date when you sell your position
- Exit price: price at which you sold your position
- Profit / Loss: the amount of profit or loss made from the trade
- Risk reward ratio: ratio of gain to risk taken for this trade
- % change in the portfolio: % change in the portfolio by the gain of this trade
- Exit reason: reasons for selling the position
- Complete chart: a complete chart of the stock which marks entry and exit points
How to review your journal after trade to refine your execution
Now the trade is complete and it’s time to review the trade. If you have been disciplined in maintaining your trading journal now is the time to bear fruits from it.
Review losing trades
Review of losing trades will offer the most valuable insights in your trading career. Look for patterns of losing trades, if they are similar then maybe it’s time to stop trading that particular pattern.
Review your trading journal to see if your emotions affected your losing trades. Did you enter trades impulsively, out of fear or greed? Did you hold onto losing positions longer than you should have, hoping for a reversal? Being aware of your emotional triggers can help you avoid making the same mistakes in the future.
Seek feedback from other traders or mentors to gain an outside perspective on your losing trades. They may be able to point out blind spots or areas for improvement that you may have missed.
Review winning trades
Review your trading strategy and identify what worked well in your winning trades. Did you enter the trade at the right time and with the right technical indicators? Were your entry and exit criteria effective? Look for patterns and strategies that you can replicate in future trades.
Identify your edge. Review which trades gave you the most success. Start replicating these trade patterns in future trading.
Review your risk management plan and see if it played a role in your winning trades. Did you stick to your stop loss and take profit levels? Were your position sizes appropriate? Good risk management can help you preserve your gains and limit your losses.
Don’t forget to celebrate your wins! Take a day off, and take your loved ones out someplace nice. Positive reinforcement can help build confidence and a winning mindset, which can translate to future success.
Review your emotional condition during trading
it’s essential to pay attention to your emotional state during trading. Emotions can play a significant role in decision-making, and managing them is crucial to successful trading. Here are some tips on how to review your emotional condition during trading:
Review your journal and identify situations that triggered strong emotions, such as fear, greed, or frustration. Did you enter a trade based on a hunch rather than analysis? Did you panic and exit a position prematurely?
Look at how you responded to emotional triggers. Did you take a break to calm down and analyze the situation before making a decision? Or did you act impulsively and make a rash decision? Analyzing your responses can help you develop better coping strategies for managing emotions.
Incorporate mindfulness techniques into your trading routine. Take a few deep breaths and focus on the present moment before entering a trade. This can help you stay centered and avoid getting swept up in emotions.
The most essential factor
Are you ready to take your trading game to the next level? Then buckle up and get ready to stay disciplined! Discipline is the most essential factor when it comes to refining your execution and becoming a successful trader. Here’s why:
discipline is the key to making smart decisions and avoiding costly mistakes. By sticking to your trading plan, you’ll avoid getting sidetracked by emotions and impulses.
Analyzing your losses is also crucial to staying disciplined. By identifying what went wrong in your losing trades, you’ll be able to make adjustments to your trading plan and avoid making the same mistakes in the future. This requires discipline and a commitment to continuous improvement.
Finally, setting realistic expectations is key to staying disciplined. Trading is not a get-rich-quick scheme, and success takes time and effort. By setting achievable goals and staying focused on the process, you’ll be able to stay disciplined and avoid getting discouraged by setbacks.
In conclusion, keeping a trading journal is a crucial component of successful trading. By recording and analyzing your trades, you can identify patterns, track your progress, and make adjustments to improve your overall performance. While it may seem time-consuming or tedious, the benefits of maintaining a trading journal are numerous, and can ultimately lead to greater profitability and success in the markets. Whether you’re a seasoned trader or just starting out, incorporating a trading journal into your routine can help you stay disciplined, focused, and accountable in your decision-making process. So, if you’re not already keeping a trading journal, there’s no time like the present to start. With consistency and dedication, you’ll be well on your way to achieving your trading goals and maximizing your potential in the markets.
- What tools can be used for creating the trading journal?
- What are the benefits of maintaining a trading journal in the stock market?
A trading journal helps you track your performance, identify patterns, refine your strategy, and stay disciplined.
- What are some key parameters to include in your trading journal?
Entry and exit points, trade size, risk management strategy, emotional state, and notes on market conditions.
- How often should you review your trading journal?
Ideally, after each trade or at least weekly, to keep a continuous record of your performance.
- What are some common mistakes to avoid when reviewing your trading journal?
Focusing too much on individual trades rather than overall performance, being too subjective in your analysis, and not tracking your emotional state.
- What are some best practices for maintaining a trading journal over the long term?
Consistency, accuracy, objectivity, and periodic reviews of your journaling process.