Improve Your Trading Every Day

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Dr Gary Dayton

17 Dec, 2009

in Psychology and 1 more

Many traders seem to know that a trading journal can be important to their success, but when asked why this is so, they draw a blank.  Many traders do not understand how a trading journal can be a vital tool for self-development.  This may be one of the reasons why many traders don't bother with one.† Failure to keep a trading journal, however, is a disservice to the trader and may be an important factor in why traders continue to struggle with trading.

The Compounding Effect of Keeping a Daily Trading Journal
The trading journal is one of the best ways to improve your trading every day.  If you were able to improve just a little each day, can you imagine how skilled you would be after, say, 90 days?  What about a year?  The effects not only add up, but they compound and can make you much more knowledgeable, much more skillful, and much more disciplined.  Over time, the work put into a trading journal leads directly to trading well.

Trading Journal as Your Virtual Coach
When used properly and regularly, the trading journal can act as your virtual trading coach, guiding you toward your goal.†† I will show you how to use a trading journal to help you develop both your technical trading skills and your mental and trading psychology skills. 

Trading Journal to Improve Your Technical Skills
When using a trading journal effectively day after day, you are working systematically on your technical skills.  You are looking at the markets you trade and studying them and their behaviors.  You note market developments.  As you work with your journal, significant, telltale market patterns will become more and more apparent to you.  Your ability to read the action of the market will improve.  And, whatever technical indicators you use - whether it is ADX, a stochastic, RSI, etc when you record the numbers each night as you should when keeping a journal, you begin to pick up on their subtleties and nuances.  You become much more skilled at reading them.  You learn to anticipate trade locations and what the market behavior should look like when in such a location.  The trading journal is an effective tool in helping you systematically build and extend your technical abilities.

Trading Journal to Improve Your Mental Skills
Trading journal also helps you build your mental and trading psychology skills.  By keeping a journal, you learn about yourself, which may be the greatest benefit.  You will soon clearly see mental and emotional patterns that play out in your trading.  You will identify your strengths and the things you do well.  You will also identify your limitations.  These may not always be easy to see without the reflection created when making journal entries.  The trading journal helps shed light on what may be outside the trader's awareness.  And, if you choose to turn a limitation into strength, the trading journal helps you set goals and mark your progress.  Recording your progress, you will see your development unfold.  The journaling you do as you work on your own development brings about the internal confidence so necessary to trading successfully.

Seven Trading Journal Tips
Nearly every successful trader keeps a trading journal.  They know it is one of the most powerful things they can do to improve their trading skills and, ultimately, their profitability.  Here are seven tips you can use to help make keeping a trading journal a habit with high value and continuous return:

1. Do the numbers.  Keep a notebook of your key markets.  It's simply not enough just to look at charts.  Write down the high, low, close, & volume of the markets you follow and your most important indicators.  Not only will this practice help you keep in tune with your market, you will actually be surprised at how quickly you will hone your tape-reading skills.

2. Record all trades.  You must do this.  It is fundamental to a trading journal and essential to all the potential transformation that flows from it.  Just do it! 

3. Record your thoughts and feelings on every trade.  If you want to understand your trading psychology, this is the authentic pathway.  Your relationship with your thoughts and feelings shape behavior.  Just as there are tradable patterns in the markets, there are patterns in your thoughts and feelings that prompt you to act and trade in a certain way.  Learn these.

4. Identify your strength and limitations.  You need to know what you are good at and can rely on, as well as where you reach your current limits.  Link your thoughts/feelings/behaviors to each.

5. Develop a plan to overcome your limitations.  This is one of the greatest value of your trading journal.  Pick one limitation that you want to change and develop a plan to address the thoughts and feelings associated with that limitation.  Look to your strengths as guidance in altering what is holding you back.  Specify the steps needed to make this a reality tomorrow and into the future.

6. Track your personal performance.  Your personal data shows progress and also reveals problematic areas to improve.  Track your wins vs. losses and related data (e.g., average win/average loss; wins & losses in an uptrend vs. downtrend vs. trading range, etc.).  Do you now see why #2 is so vital to you as a trader? 

7. Make journaling a part of your routine.  Write your diary at the end of every trading day.  Each week, month, quarter and beyond, review your journal to identify areas to work on as well as your progress.  Like a runner who can't go a day without a run, you will soon become a trader immersed in the process of self-development and profitability.  You are now on the path of the master trader! 

Used correctly and consistently, the trading journal serves as your virtual trading coach helping you build not only your technical skills but your mental skills - both skills are vital to your trading success.†More information about trading psychology and technical chart reading, as well as how to improve your mental game and technical skills can be found at Trading Psychology Edge

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Short and sweet, this article is a good introduction to the subject of keeping a journal. It outlines the basic features and benefits of journaling and is a good primer for the other articles on the subject by Brett Steenbarger, which explore it in greater depth:
When Trading Journals Donít Work
Making Trading Journals Work for You
Tim.

Dec 19, 2009

(4927 posts)

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