Why the trading journal is the serious trader’s best tool for trading improvement
One of the most often repeated maxims of trading is – journal your trades. Almost universally trading instructors, coaches and mentors strongly encourage beginning traders, struggling traders and even seasoned and successful traders keep a trading journal.
Yet, journaling tends to fall into the same category with broccoli, brussels sprouts, clean living and exercise; universally acknowledged as beneficial but partaken in sparingly and with great reluctance.
Journaling is often viewed with much the same attitude as homework, done reluctantly if at all even under the tutorage of an instructor. Traders will agree to journal yet when asked if they journaled today or this week will often give the shame-faced adult equivalent of a middle schooler claiming the dog ate their homework.
Which is a shame, because serious journaling can produce serious improvement in your trading. There is no other tool, which costs you nothing, which when used properly will consistently lead to improvements in your trading.
Ok so without further ado lets examine what a trading journal is, how most traders under utilize a trading journal and how you can maximize the benefits of your trading journal
What is a Trading Journal?
Most anyone who has been involved in trading has at least heard of journaling or a trade journal. Basically, a trading journal is a contemporaneous or post trading session written account of what happened during that trading session.
That is a fairly vague definition because journaling is such an open-ended interruptive process that no two traders do it the same way and that’s not a bad thing. In fact that open-ended aspect of journaling is where the beauty and power of the journaling process lies.
Let’s examine this a bit deeper.
The Where – When it comes to the where of journaling most traderseither journal in a free style written form or use a spreadsheet. Either can be used with pen and paper or an electronic form. Each has its pros and cons and at different points on your trading journey one format or the other may suit your needs better.
The When – Again most traders fall into one of two camps when it comes to the when of journaling. Either they journal while trading, writing while watching the market, before entering trades, upon enter a trade, while managing trades and after closing a trade. Or they only journal after the trading sessions has ended, recapping the events of the session and noting relevant information.
The What – journaling can be about anything related to your trading. Anything! Most traders focus on the time of entry, whether the trade was a long or a short, the profit or loss of the trade and perhaps what type of entry they would classify the trade as. An example a typical journal entry could look like this:
11:15am long on pullback entry. Stopped out for full 10 tick loss.
Yet journaling can be about anything. The scope of your journaling is practically unlimited. Traders journal about their emotions, fears, market conditions, conviction levels, trade rationales, win/loss ratios, etc, etc..
So that’s journaling as most traders think of it in a nutshell. A simple written record of the when, what and results of their trading day.
But journaling can be so much more and you as a trader can get so much more from your journaling. Let’s look at what journaling could be and how you can get the maximum benefit from your journaling.
Maximizing Your Journaling
The first thing you need to internalize if you are going to get the most from your journaling is that a true trading journal is an amorphous shape changing beast that grows and changes as you grow and change as a trader.
This is the true power of a trading journal. A trading journal can transform into whatever you need at that particular point in your trading journey.
What does that even mean you ask? A trading journal should never be a static record of the same data points. These days every trading platform tracks trading metrics in some form and fashion. You can easily pull up the entry time, buy or sell, number of contracts and profit or loss of each trade. These are statists and metrics and while very important this is not the true transformative power of a trading journal.
What you should use your journal for changes because what you need to focus on as a trader to continuously improve changes. The strength of journaling is that it allows you to focus on different aspect of your trading at different times in your development.
No matter where you are along your trading journey you need to get better at some (or every) aspect of trading. Be it reading the market, recognizing trading opportunities, entries, trade management, exits, psychology, literally EVERYTHING!
As you grow and develop your trading skills some aspects of your trading develop quicker and more robustly than other areas. Journaling allows you to first record and thus recognize areas of strength and areas of weakness, and second to systematically and individually target each area for improvement.
This is how you use incremental improvement to develop trading excellence. Systematic incremental improvement in areas of weakness and strength.
Focused Journaling
I recommend that you switch the focus of your journaling every week. Pick one specific area of your trading you want to improve and focus your journaling for that week on that topic. This keeps your journaling fresh and engaged and helps you become focused on focused improvement.
Now this is not a hard and fast rule, it much depends on your trading style and the number of trades you take per session. For scalpers and day traders a week is probably sufficient whereas for swing and position traders this might need to be stretched out to several weeks or even months.
Imagine, you have noticed that you repeatedly find yourself taking profits too early in winning trades. Time and time again you exit a winner only to watch it continue on without you.
Here you would focus your journaling on trade management, exits and targets. For each trade you might note, prior to entering the trade, where you think the proper take profit location is. Then you would note where you actually took profit and if your actual take profit is different from your pre-entry take profit explain and examine the reason for the difference.
Was it emotional? If so what were the emotions and over the course of several trades were the emotions the same? Or was it based on something that happened on the chart subsequent to your entry? if so, was your decision to take profit at a different price validated by subsequent price movement?
Using this approach an entry in your journal might look like this:
Looking for entry long at pullback after break of resistance. Target would be S/R at high of day. entered on pullback. Noticed heartrate increased significantly when price consolidated at minor swing low. Exited for 18 ticks profit. After exit price continued to original profit target without a major retracement.
Really use your journaling to dig deep into this very particular aspect of your trading. Don’t allow yourself to be happy with trite or shallow explanations and answers. Ask your self tough questions and demand full answers. This is where growth and develop happens. Don’t miss this opportunity.
Let’s say you notice that your pr-entry targets are very reliable in that price reaches them without much retracement after your entries. This gives you more confidence to hold your trades. You also notice that you get extremely nervous if price stalls after entering a trade and you take profits immediately, but you also note that this first stall rarely pulls back to your stop and almost always continues to your pre-entry target.
Noticing these tendencies gives you awareness of these tendencies and this awareness gives you the power to change and improve. Being aware both of your emotions and of market behavior gives you the confidence to hold trades that before you were exiting too early.
By focusing on this particular aspect of your trading you become mindful of that aspect of your trading. You start noticing repeated behaviors within yourself and once you consciously notice a behavior you can alter a behavior. This is how you achieve incremental improvement.
In the above example if through this process of focused journaling you are able to improve your average winning trade by 20% this will have huge implications for your average win /lose ratio and thus a huge impact on whether you reach profitability as a trader.
Next week or next month, choose a different focus area and repeat this process.
This is how you go from losing trader to breakeven trader to profitable trader. Its not a single “AH HA” moment. Its small incremental improvements that compound throughout your trading journey.
Now don’t walk away from reading this article thinking you will miraculously work through each and every one of your trading challenges on a week by week basis. If only it was that easy.
Trust me it’s not. Your trading journey will be filled with struggles, setbacks and disappointments. However, journaling is an effective and free tool that the more you utilize it the more it helps.
Use the power of journaling to focus your learning on small discrete areas of your trading. Taken as a whole trading can be overwhelming, but when broken down it bite sized chucks you can focus in and see measurable improvement in short periods of time.
Happy journaling dear traders!