In many of our trading articles, featured in our between the lines section of our blog, we stress the importance of keeping a trading journal as part of our overall trading plan. But what should we put in the journal and how does it differ from what should feature in our trading plan? The trading plan will contain the ‘metrics’ by which you trade; what securities to trade, how much risk per trade, how many lots per trade, the drawdown, perhaps what times of the day and week you’ll trade and other key objectives. The journal is more of a step by step narrative regarding your results, your views and your emotions. Both are invaluable assets to your trading success, but it’s important in the early days of our trading career that we keep a journal separate from the trading plan.
Looking back many of us more experienced traders may be slightly embarrassed by the actions we took early on in our fledging trading careers. For example, I’d print off all the trades I’d taken on any given day (during my formative day-trading period) and ‘study’ them in the evening. I was looking for clues as to why price did what it did, completely ignoring the day’s high impact news events and fundamental policy announcements. Looking back it would have been far better too have overlapped the two and written on the printed off charts the ‘inflection points’ when the news broke.
Secondly I’d print off and keep in a folder (to finally pin on the wall) motivational quotes I’d read on my ‘internet travels’, those of Mark Douglas the famed author of “Trading In The Zone” took centre stage on my office wall. Here’s a taster and there’s a reason why I’m writing them. I’d be interested to know if readers have deciphered the reasons why I’m deliberately selecting these quotes.
- Attitude produces better overall results than analysis or technique.
- Positive winning attitude = expecting a positive result from your efforts, with an acceptance that whatever results you get are a perfect reflection of your level of development and what you need to learn to get better.
- Winning in any endeavour is mostly a function of attitude.
- Losing and being wrong are inevitable realities of trading.
- The market has no responsibility towards the individual trader. Taking responsibility means acknowledging and accepting, at the deepest part of your identity, that you, not the market, are completely responsible for your success or failure as a trader.
- If you perceive the endless stream of opportunities to enter and exit trades without self-criticism and regret, then you will be in the best frame of mind to act in your own best interest and learn from your experiences.
- You will need to learn how to adjust your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear, but at the same time keep a framework in place that does not allow you to become reckless.
- Trading is an activity that offers the individual unlimited freedom of creative expression.
- The unlimited characteristics of the trading environment require that we act with some degree of restraint and self-control, at least if we want to create some measure of consistent success.
- The hard reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible.
- One of the principal reasons so many successful people have failed miserably at trading is that their success is partly attributable to their superior ability to manipulate and control the social environment, to respond to what they want. (Unfortunately) the market doesn’t respond to control and manipulation (unless you’re a very large trader).
- The tools you will use to create this new version of yourself are your willingness and desire to learn, fuelled by your passion to be successful. Successful traders have virtually eliminated the effects of fear and recklessness from their trading.
The reason for me bringing our readers’ attention to these quotes is twofold; firstly they’re as relevant and fresh now as they were then and secondly the period of slight embarrassment I felt, when I harvested these quotes and repeated them over and over again, seems now (with the benefit of hindsight) overdone. There should be no shame or embarrassment attached, there was nothing ‘wrong’ in me putting these quotes and indeed my chart print offs in a small folder and studying them, particularly if that study (and learning to recite those quotes) led to me developing as a trader. Whilst charts and indeed quotes could form part of your trader journal what else could we place in it? Perhaps your thoughts and emotions in your formative trader months and years? It’s here that we need to once again re-affirm the difference between the journal and the trading plan.
A trading journal will help you discover what needs improving and how to go about it, this is the critical reason for maintaining a trading journal. But we need to clearly define what we mean by a trade journal. Traders might want to keep a journal of their thought processes; when trades win they may try to repeat the same thought processes in order to obtain similar results. Likewise if the trade fails, they may want to use the same thought processing in order to avoid making similar mistakes in the future. The journal you keep should record your thoughts as you make important decisions: entries, exits, stops, take profit limit orders.
Traders may consider their journal as a complete log, or blotter of the trades they have taken, with the times of their trades, the pip gain, the monetary gain and the percentage gain. Or the time spent in each trade, etc. Traders may find more value in these highly personal statistics and use these to improve trading entry/exit or management techniques.
The trading journal allows us the opportunity for self examination. What information do we find to be the most useful, why is any trade a winner or a loser, could any given trade have won or lost more, if so how, could we have let the runners win, cut the losers earlier? Questions like these are the basis for forming your trading improvement and deciding the type of key information you should be collecting on yourself.
Most traders need to gather information in their journal about how they trade, not how the market moves. Most trading mistakes or errors have nothing to do with the market, but will be completely invisible until traders collect their own data on themselves.
To finish, it may surprise new traders that at major banks, hedge funds and proprietary trading firms, new traders and apprentice traders are compelled to keep a trading journal during their formative trading years. The experienced traders and the managers recognise the value of a journal and it’s not until your considered a ‘complete’ trader that the journal or trade blotter is dispensed with. Naturally the journal may be linked to key software, but the manager will still be looking for the thought processes by which all the early day decisions have been made.
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