Essentials Of 'Trading Journals'

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Old Jan 15, 2010, 2:54pm   #1
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Essentials Of 'Trading Journals'

Welcome to the Essentials Of 'Trading Journals' Sticky. ‘Essentials’ Stickies are threads that are ‘stuck’ to the top of a forum index. They contain information about the forum you’re in that is of critical or ongoing value - hence the ‘Essentials’ name. If there’s anything missing from this Sticky that you hoped or expected to find, please contact timsk, T2W Content Manager and, if at all possible, it will be added.

What is a Trading Journal?
Many traders aren’t really clear about what a trading journal is or the point of keeping one. This section covers the basics and explains how your trading could benefit by starting one.

Special Features of the ‘Trading Journals’ Forum
This section outlines some technical features which makes the Trading Journals forum unlike any other forum on T2W, as well as providing a basic template for aspiring journalists to follow.

Other Resources on T2W
There are some great resources regarding trading journals beyond the walls of this forum. Here, you will find links with a short précis about contributions to the Articles section and the Trading Videos sub-forum.

What is a Trading Journal?
This section examines what a Trading Journal is, why traders keep journals and what they hope to achieve by doing so.

Journals work at different levels. At their most basic, they are no more than a record or log of trades taken, listing the day and time of the trade, entry and exit prices, long or short, size (i.e. number of shares or contracts etc.), stops and targets, number of points made / lost, commissions and net P&L. From this information, a trader can work out the two most important ratios critical for trading success. The first is the size of the average winning trade Vs the size of the average losing trade, this is called the 'Profit Ratio'. The second is the number of winning trades Vs the number of losing trades, this is called the 'Success Ratio' or win:loss ratio. Traders who are diligent and methodical in maintaining their journal will be rewarded for their efforts by the journal itself. Over time, it will reveal important patterns. These will enable the trader to determine things that would be difficult to discover without the journal, such as the best day of the week or time of day to trade and whether better results are achieved by trading long or short etc.

That’s just the start. Ideally, the trader takes a screen grab of any relevant charts showing where the trade was opened and closed. A picture paints a thousand words and, in doing this, many traders have looked back over old trades and, from the screen capture alone, wondered what on earth possessed them to take the trade! Additionally, a note will be made of the specific trade set up employed, as well as the entry and exit triggers used to execute the trade. Some journalists even have a system for evaluating all three objectively, so that at the end of the week or month, they can see where their
strengths and weaknesses lie.

Much of the above relates to statistical information, most of which will be recorded for you by your broker. To take a journal beyond a mere log and into true journal territory, the trader really needs to note how they feel about themselves, the markets and anything else pertinent to their trading. Above all, they must note their justification for taking each and every trade. In this context, justification means the reasons that would be given to someone else for taking the trade. Imagine you trade other people’s money (OPM), what reason or justification would you give them for taking the trade? Noting your reasons is often difficult to do in real time while you’re trying to focus on the markets. One solution to this problem is a digital voice recorder, widely available and costing no more than about GBP £25.00. You may think you’re disciplined and that you follow your plan to the letter, but you may be surprised at just how wrong you can be. Listening to one’s mumblings the next day can be a chastening and eye opening experience! All too often, a brilliantly conceived plan is poorly executed. Tell tale comments to look out for include: I entered long because . . . ‘it looked like it was about to go up’, ‘it looked oversold’, ‘it couldn’t go down any more, it had to go up’, ‘it was time that it went up’, ‘I could feel it, I could sense that it was about to go up’. If you traded OPM, would your clients be happy with any of these ‘justifications’ for your trades? Probably not!

Most retail traders complete their journals in the privacy of their own study or office at home. So why transfer all or part of this process to an online public forum? The main reason traders choose to do this is because they are experiencing difficulties with one or more aspects of their trading. Opening up their practice to public scrutiny helps them to be more focused and disciplined while, at the same time, it exposes them to ideas and suggestions from other traders. Whether you’re a complete newbie or an experienced trader, the journal process can literally transform the way you view the markets and the way you trade them. For newbie’s, a journal has the potential to fast track their learning curve dramatically. More experienced traders tend to have a specific issue that they are struggling to resolve, such as how to exit a profitable trade for the maximum possible gain. Either way, a journal is a good way of trying to get from where you are now to where you want to be.

Special Features of the ‘Trading Journals’ Forum
This section outlines the issues you might like to keep in mind before starting your journal in order to get the most out of it. It has two parts: the first is 'Forum Tools' which details some tools that are bespoke to this forum and the second is 'Journal Objectives' which outlines the information to provide in order to get intelligent, constructive and focused feedback from other members (assuming that’s what you want!)

FORUM TOOLS
The Trading Journals forum is unlike any other public forum on T2W. Each journalist (i.e. anyone who starts a journal) has some powers of moderation to ensure that only approved members may contribute to their journal. These moderation tools may be accessed when the journal is first started. Beneath the main ‘Post New Thread’ window, is a second window entitled: ‘Additional Options’. (This is the window used to attach files - typically charts - to a post.) There are six categories with blue headings, the last of which is entitled: ‘Thread Privacy’ and contains two optional radio buttons to click:
O ONLY allow replies from users on my CONTACT list
O Disallow replies from users on my IGNORE list
Please see the panel outlined in red in the graphic, below.

thread-privacy-options-trading-journals.jpg

These two options give you a lot of control over who may or may not post to your journal. If you check the top button to only allow replies from users on your contact list, you’ll need to advise members early on in your journal (ideally in the opening post) that this is your policy and to contact you via PM or e-mail if they wish to be added to your contact list. Checking either (or both) radio buttons will require you to actively manage your contact and ignore lists.

JOURNAL OBJECTIVES
It’s recommended that you spell out in the first few posts exactly what it is that you hope to achieve by starting your journal. This will provide focus for you as well as everyone subscribed to it. Trading is a bit like going on a long car journey. Just as you wouldn’t set off in your car without knowing your destination and a good idea of how to get there (or have a map or SatNav to guide you), to trade successfully requires you to know what it is you’re trying to achieve and how you expect to achieve it. To help bring this into focus, these are the specific issues that would, ideally, be addressed early on in your journal . . .

Objectives
What do you want to achieve? Is trading to be your hobby, a part time job, a foundation for a career as a prop’ trader or your full time job?

Markets & Instruments
Which market(s) will your trading – and your journal – focus on? If you trade stocks, which exchanges will you trade and how many stocks will you track? If you trade forex, how many currency pairs will you track etc.?

Style
Are you a scalper, in and out of the market in minutes? Or do you prefer a more relaxed approach? Broadly speaking, are you a day trader, swing trader or position trader?

Timeframes
Which timeframe(s) will you use? Do not be limited by convention. If you’re a swing trader, there’s nothing to say that you have to use daily and weekly charts alone. Have you considered using one minute charts to get a scalper’s entry with a tight stop that you can then run into a swing trade?

Reversals, Breakouts or Retracements?
Essentially, most trading strategies fall into one of three generic types: reversals, breakouts and retracements. There are pro’s and con’s to all three; do you understand what they are and why you’re better suited to trading one rather than another?

Trade Set Up
Have you got a set up? A set up is a clearly defined set of variables that come together and indicate that a trade may be on the cards. This needs to be simple; very simple if you’re a day trader, as you have to recognise it in real time and act quickly. ‘I’ll enter long at a continuation pattern within an established uptrend’ is not a set up. It’s too vague. It’s like saying ‘I want to travel north’ using the car analogy from earlier on. It needs to be precise, a lot more precise.

Testing
Once you’ve established a simple and clearly defined set up, you need to test it to see what the probability of a successful outcome is. It’s impossible to do that if you haven’t defined your trade set up precisely enough to begin with. Trading without knowing the probability of success is more akin to gambling than trading. The trader that attempts to test ‘a continuation pattern within an established uptrend’, first needs to define what trend is and then the exact characteristics of the continuation pattern. Hand drawn trend lines are likely to produce different results from computer generated ones (e.g. moving averages). Continuation patterns come in all shapes and sizes: rectangles, triangles, pennants and flags – to name but a few. All of these too - are likely to produce different results from the other. And that’s just using two variables. The more variables you add, e.g. different candlestick patterns or indicators, the more complex and time consuming the testing process becomes.

Entry, Stop Loss & Targets
It’s a common mistake for new traders and aspiring journalists to start by outlining their entry, stop loss and target, not realising the necessity for any of the above, or thinking they can take a short cut around it. If you don’t set out the ground rules by doing the necessary preliminary work, your journal is likely to meander aimlessly from pillar to post and get nowhere. You won’t be able to distinguish what you’re doing right from what you’re doing wrong and you won’t know what advice to accept and what to ignore. The likely consequence is that your journal will just fizzle out without reaching any useful conclusions. Worse still, you will be left feeling even more frustrated and confused than you were before starting it. Don’t let this happen to you!

Useful Links

T2W THREADS
Free Excel Trading Log Template
A useful tool which covers the basic requirements for good record keeping and can easily be adapted.

T2W ARTICLES
The main resource for the aspiring journalist is the Articles section of T2W, which can be accessed via the ‘Articles’ tab mid way along the red menu bar at the top of the page. There are lots of excellent contributions, but there are three articles that relate directly to Journals. The first is by Gary Dayton and is a good introduction to the subject. The other two are by Brett Steenbarger. All are well worth reading before commencing your journal.

Improve Your Trading Every Day
Dr Gary Dayton discusses why keeping a trading journal can be of major benefit to improving your trading and includes seven practical ways that aspiring traders can use their journal.

When Trading Journals Don’t Work
In this article, Brett Steenbarger outlines why journals fail and, by implication, what you need to do to ensure that your journal stays on track and accomplishes its purpose.

Making Trading Journals Work for You
Having diagnosed where and why journals tend to fail, in this follow up article, Brett discusses the key components of a properly constructed journal and how it can be a powerful tool for cultivating what he describes as ‘exemplary trading behaviours’.

T2W VIDEOS
As well as the articles, it’s well worth checking out the videos in the ‘Trading Videos’ sub-forum within the T2W Site Content Forum, which is listed in the ‘Quick Links’ blue drop down menu accessed from any thread in any forum. (See graphic, below.)

trading-videos.jpg

There are two videos relating to Trading Journals, both produced by Learn to Trade | Forex, Futures & Investing | InformedTrades

How to Keep a Trading Journal - Forex, Futures, Stocks #1
This introduction to the subject outlines the value of keeping a journal and the benefits you might reap from maintaining one.

What Your Trading Journal Tells You - Forex and Stocks #2
In this follow up video, the narrator explains the basic things that you need to record in your journal and the reasons for doing it.

EXTERNAL LINKS
Tradervue
This is an online trading journal and analyser that allows you to import your trade data direct from your broker or trading platform. Note that it is subscription based, but there is a free version as well which might be a useful starting point.

If you know of any other resources either here on T2W or beyond that would be of interest and value to members who want to learn more about trading journals, please contact timsk, T2W Content Manager and, if at all possible, they will be added.
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Last edited by timsk; May 4, 2012 at 6:04pm. Reason: Added link
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Old Oct 14, 2011, 7:57pm   #2
Joined Dec 2009
Re: Essentials Of 'Trading Journals'

I have used a trading journal from the beginning of my trading career nearly three years ago. There is no doubt it provides valuable insight into performance, as each profit and loss teaches you something. My journals used to be spreadsheets fine-tuned ad-nausea with all kinds of variables. Lately, it is far simpler with a handful of factor to help me monitor my progress. My point is, not having a journal is amateurish at best, but going too deep into it may be a distraction.
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Old Apr 20, 2012, 12:35pm   #3
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Re: Essentials Of 'Trading Journals'

True....journals are great as they help you record / monitor actions and amend your trading accordingly....the most important thing for me is to internalize the points made cause its very easy to disregard / forget this. Over time and with regular use they are valuable tools.
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Old Sep 16, 2012, 4:06pm   #4
 
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Re: Essentials Of 'Trading Journals'

I don't have a journal, but I have a trading plan in place. I feel a detail trading journal requires too much time. I just simply rank my activities at the end of the day by : excellent, good, bad. If it is excellent, I don't follow up. If it is good, I will look at how I can improve for next day. If it is bad, I will analyze what went wrong and how to fix it.
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Old Sep 17, 2012, 2:38pm   #5
Joined Jun 2012
Re: Essentials Of 'Trading Journals'

Surely you need to assess your trading performance over a longer period that one day? How can you assess what's working medium or long term if you don't track your results in a trading journal. I don't spend much time on mine - it's just a free spreadsheet that I downloaded from the Trader's Bulletin blog - only takes a few secs to fill in after each trade.
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Old Oct 23, 2012, 9:47pm   #6
Joined Dec 2011
Re: Essentials Of 'Trading Journals'

I honestly don't know how people trade without journaling. I know the systems and websites have tools to help with organization, but it's so much more comfortable to have everything in a spreadsheet at my finger tips. I also started off robust and have simplified and cleaned it up to minimal details. If you would like a sample journal, let me know and I'll be happy to share.
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Old Jan 24, 2013, 12:54pm   #7
 
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Re: Essentials Of 'Trading Journals'

To become a commercial Trader it is important to learn from your experiences. By keeping a Trading Journal you can begin to understand your trading habits and become restricted, responsible and more profitable.
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Old Apr 26, 2013, 3:53pm   #8
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Re: Essentials Of 'Trading Journals'

I have a much different perspective on the real value of the trading journal. Sure it is nice (or terrible) to look at your net on an individual trade or on your progress thru the year,but the most signficant value by far is to measure the effectiveness of your rules.

In my opinion the greatest value is the ablity of auto reporting the annualized return of each trade entirely inside your rules and the same for trades out side your rules - and to deliver an annual summary of the net for both of these. For example, before my journal contained this data, I was a self-satisfied that my trades were delivering a 28% annualized return. But when I began splitting performance between trades inside and outside my system, I discovered I was netting 28%, but I was making 52% on trades inside the system and losing 37% on trades outside the system.

Such data drives the trader to stay inside the rules and to tweak the rules for better performance. My trading moved from acceptable to very successful solely upon adding this feature to my journal.

Drake

Last edited by timsk; May 8, 2013 at 6:14pm. Reason: Deleted quote of OP.
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