Your Secret Weapon to Trading Success – A Trading Journal

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Your trading journal is like a secret weapon to trading success, many novice traders don’t realise how important it is to have one unless (1) they were forced to do so by their coach/mentor or (2) they have recently gone through a bad patch but they realised they have no idea what they’ve done wrong.

For many, a trading journal is just another boring exercise and they seem to think that Trading Schools added it into their syllabus as a “nice to have”. In the end, even those who invest in trading education are stubborn enough to avoid this exercise.

If you are reading this right now but you have not started your Trading Journal, then I strongly encourage you to reconsider. With that, I’m going to share with you some reasons for having one.

Gaps for Improvement

Your trading journal will be one of the most useful recording tools. Without a trading journal, there are very limited options to how you can review your historical trades. As mentioned in my previous article “The Power of Trade Reviews” (see article), reviewing your trades is crucial to closing the Gap between what you want to achieve and what you are doing at that point in time. The Gap is what traders need to focus for improvement.

It’s Black and White

evidenceAmateur traders (or even intermediate traders) often end up tweaking their rules rather then following strictly to them when placing an order. Irrespective of the outcome of the trade, your journal will be the proof to show that you have kept to your trading rules – assuming that the trade journal was done with sufficient depth – and that will eventually lead to trading success.

Since all evidences were documented, there is no room for debate on what your actions were when reviewing your trades.

System Modification

Modifying or updating a trading system requires the trader to take a systematic approach rather than just “try and see” approach. Traders usually need to review their rules and reflect on what they’ve done in the past. Hence, a trade journal is required if they want to review historical trades and to analyse how it has performed in the past – as opposed to just relying purely on the financial profit or loss.

Building a Portfolio

Let’s face it, if you are trading consistently, the only other issue that you will face is being under capitalise. Hence, having a trade journal is a great way of building a trade portfolio. It is like an Architect who shows a developer his work before he is given the opportunity to shine. Since your trading account is the only thing you have to show your performance, a record of how you operate (a.k.a. your rules) will add significant and non-tangible values to your portfolio.

So, if you intent to start look for investors and/or to trade other people’s money, be sure to start collecting your portfolio.

Emotional Control

Busy BusinessmanUnknown by many traders, keeping a trade journal does not only include reasons for taking or closing a position. In fact, an effective trade journal should also include a record of your emotions. In other ways, a trade journal can also be used as Emotional Control mechanism.

For example, if you have an open position, and you start to feel uncomfortable with the trade, you should start noting any emotional discomfort that you may have. Some of these emotions might be due to a different bias that you heard from another trader (external factor), sometimes, it could also be due to fear of losing (internal factor).

Hence, without a record of your emotions, it’s hard to evaluate your emotions later because evaluations like these are most effective only when you are in a neutral state-of-mind. And without knowing the cause (external or internal) of the emotions, it’s much harder to manage it in the future.

Conclusion

In short, the reasons above is only the tip of an iceberg of many more reasons to have a trading journal. If you are trading without a trading journal, then I would definitely advise you to start one now.

A trading journal need not be complicated, some traders take a screen print from your computer. Then just top it up by downloading trade records from your broker. Be creative.

Thank you for reading and happy trading!!

 

 

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