Getting StartedPsychology

When Trading Journals Don?t Work

One of the most common pieces of advice trading mentors give to their students is the keeping of a trading journal.  By documenting your trading, the common wisdom holds, you can learn what you?re doing right and wrong and speed your learning curve.  I happen to be quite a fan of trading journals; indeed, I made journals a mandatory part of the training program at a Chicago-based proprietary trading firm.  All too many times, however, I found that the journals did not accomplish their purpose.  They became rote exercises that did not get to the heart of either trading problems or solutions.  So I thought in this article I?d outline the five most frequent shortcomings with journals and how these can be addressed.

  1. The journal lacks specifics.  Many times the journal becomes an outlet for the trader, a way of venting.  While there is nothing wrong with venting per se, it is hard to see how *simply* venting in a journal can improve performance.  A common entry might state, ?I overtraded a slow market and broke all my rules.  I know I have to take what the market gives me.  Tomorrow I need to trade with more discipline?.  All these things may be true, but the entry lacks specifics regarding *why* the trader overtraded; *how* the overtrading will be avoided in tomorrow?s trade; and *what steps* will be taken to return to the discipline.  A journal entry that lacks specifics is a statement of good intentions; not a plan.  If your journal entry does not include concrete steps that you can follow to address a problem situation, it is unlikely that it will serve as an action guide.
  2. The journal emphasizes problems, not solutions.  Traders love to keep journals when they?re losing and then fall off the journaling bandwagon when they?re making money.  I would argue that, when you?re making money, that?s the *best* time to keep a journal.  Your goal should be to replicate successful trading patterns, not simply analyze problematic ones.  The ideal journals isolate what traders do when they?re trading their best, so that these solution patterns can be isolated and mentally rehearsed as part of a learning process.  At their worst, journals are like bad parents who chastise their children when they?re doing something wrong, but never offer attention and praise for good behavior.  Kids learn to resent such parents, and traders learn to resent problem-focused journaling.
  3. The journal talks too much about the trader and not enough about the markets.  Journals are a learning tool, and your ultimate goal is to learn how to trade.  By focusing exclusively on your state of mind, what you did or didn?t do in the trade, etc., you lose the opportunity to identify and learn patterns that appear in the market.  It?s extremely helpful to review a market day and examine what you could have noticed to alert you to a market move.  Perhaps oil made a breakout move preceding a break in the equity indices; perhaps a move in the currency markets could have given you an early read on how the market would respond to Fed news.  By retrospectively identifying such trading patterns, you train your mind to look for them the next time they appear.
  4. The journal is reactive, not proactive.  This is part of the venting phenomenon: traders will make journal entries after the market day, but rarely use the journal to actively prepare for the coming day?s trade.  An ideal journal captures what you?ll be looking for in the coming day in the markets (anticipated setups) and what you?ll be working on in your own trading.  Think of your trading as a business and your journal as your business plan for the day.  A business plan should reflect your strengths and weaknesses and identify areas of opportunity.  A business plan should also detail how you will exploit that opportunity.  Learning from past performance is important, but if the learning is not reflected in future plans, it will not be reflected in actual trading outcomes.
  5. The journal lacks metrics.  This is perhaps the topic I am most passionate about.  I have found that traders can best assess their strengths and weaknesses by keeping detailed records of their trades and by evaluating themselves across a series of performance measures.  I cannot tell you how many traders I?ve encountered who don?t have the faintest notion of their average profit per trade; their average win size and loss size; their average holding period per trade; etc.  It?s not that the traders don?t care about performance; it?s that they have not drilled down to the trade-by-trade level to see what they?re actually doing in the markets.  Many times, traders *think* they?re trading one way, only to find out when they look at the data that they?re not trading that way at all.  It?s hard to see how a trader can identify if they?re having problems trading in the morning vs. afternoon; if they?re more often right on the long side than short; or if they are trading large size differently than smaller size if the statistics are not there to be analyzed.

So what?s a trader to do?  The first step is to decide whether or not you really *want* to know what you?re doing and how well you?re doing it; whether you want to put in the time and effort to identify the patterns in each trading day?the market?s and your own.  To paraphrase U.S. college basketball coach Bobby Knight, many traders want to trade and many want to win, but not many are willing to put in the work it takes to be a winner.  While Coach Knight has earned his share of criticism, look at the pure effort he puts into preparation for a coming game.  The same intensity of effort can be found in Tour de France leaders Lance Armstrong, Ivan Basso, and Jan Ullrich, as they actively train, plan, and rehearse for each stage of the race.  This is the effort required of a winner, and each trader needs to know if he or she has the fire in their belly to sustain such work.

Ultimately, the effort to win is sustained by a desire to know.  Excellent traders are always keeping score: they want to know what they?ve done right or wrong, and what?s making and losing them money.  They are always working on themselves and their trading.  I?ve met far too many ?breakeven? traders who, upon inspection, have been losing money consistently.  It?s not that they?re lying; they simply don?t want to know the truth.  Thus, they avoid it.  It is simply too painful to look at the money and opportunities lost.  Keeping a journal *should* be painful at times, but it should also bring out the best in you.  Without it, you?re likely to be a business without a plan.

In my next article, we?ll look at the specific data and metrics you can include in your trading journal and how you can move from simple journaling to active planning.

Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY.  A clinical psychologist and active trader for the past 20 years, Brett is the author of The Psychology of Trading (Wiley; 2003) and numerous articles on trading psychology for financial publications.  His book chapters on brief psychotherapy can be found in such reference works as The Psychologist's Desk Reference (Oxford University Press, 1998) and the Encyclopedia of Psychotherapy (Academic Press, 2002).  His newest, coedited book, The Art and Science of the Brief Psychotherapies (American Psychiatric Press, 2005), has been selected as a core training text for psychiatry residency programs.  In July, 2004, Dr. Steenbarger stepped down from his medical school faculty position and began intensive work with traders at Kingstree Trading.  He also coordinates their training program for new traders.  Drawing upon an intensive research program that began in 1998, he has created a number of unique measures of market trend, momentum, and institutional activity designed to aid short-term traders.  These measures--and the trading strategies derived from them--have been chronicled daily since June, 2002 in the Trading Psychology Weblog and on his web site.Dr. Steenbarger does not offer coaching or other commercial services to traders, but welcomes questions and comments at Steenbab@aol.com.

Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and...

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The Author states, "Keeping a journal *should* be painful at times, but it should also bring out the best in you."

How true. The stinkiest days contain the biggest mistakes. What were they, why did they happen, how can they be avoided in the future?

He also states, "Your goal should be to replicate successful trading patterns, not simply analyze problematic ones. " Which is why I think journaling is so hard for beginners - everything we do is wrong, so how do you replicate a successful trading pattern if you haven't had one yet? :-0

Great Article. The Author has many other archived articles available for free at his website:
http://www.brettsteenbarger.com/articles.htm

JO
 

bracke

Experienced member
1,286 12
A thought provoking article.

I look forward to the 'how to do it' articles.

Regards

bracke
 

TraderPattern

Well-known member
339 7
Very interesting article. Thanks Brett.
 

RUDEBOY

Experienced member
1,157 6
Journals are not a bad thing, and i keep records myself not just account statements. But i notice i write a lot less in them these days. There's only so many mistakes you can keep making....after that it's back to the drawing board which ever way you look at it. RUDEBOY.
 

steenbab

Junior member
13 2
RUDEBOY said:
Journals are not a bad thing, and i keep records myself not just account statements. But i notice i write a lot less in them these days. There's only so many mistakes you can keep making....after that it's back to the drawing board which ever way you look at it. RUDEBOY.
Hi,

I find this is a common dilemma with traders. I hope to cover this in my next Trade2Win article, but for now just let me say that journals need not solely consist of written entries. I am currently using a program called Snag-It, which takes very nice screen shots of charts in real time that I can review at the end of the day. It even will take simple videos of my screen, so that I can review the day unfolding--a great learning device. (A program by the same manufacturer, Camtasia, does a very professional job of taking videos of desktop displays, which has tremendous educational value, as you build a library of different markets/market scenarios).

I also find the journals helpful in reviewing good trades as well as the mistakes. Reviewing superior trading behaviors helps turn them into habits!

Brett Steenbarger
 
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JillyB

Established member
791 38
steenbab said:
Hi,

I find this is a common dilemma with traders. I hope to cover this in my next Trade2Win article, but for now just let me say that journals need not solely consist of written entries. I am currently using a program called Snag-It, which takes very nice screen shots of charts in real time that I can review at the end of the day. It even will take simple videos of my screen, so that I can review the day unfolding--a great learning device. (A program by the same manufacturer, Camtasia, does a very professional job of taking videos of desktop displays, which has tremendous educational value, as you build a library of different markets/market scenarios).

I also find the journals helpful in reviewing good trades as well as the mistakes. Reviewing superior trading behaviors helps turn them into habits!

Brett Steenbarger
Hi Brett

Welcome to T2W, I hope you will post more as well, there are a lot of discussions going on - as you are probably aware.

Great article too. Like many I find a journal/notebook invaluable. I started one when I began trading for real and have kept it ever since. Even if it is just entry/exit points, I mark them down, though often it covers the reason for entering the trade and possible exit points too, which I put a big red tick against if they get hit.

It's also been invaluable for making notes in - and although I'm onto my second 'little pink book' (pink - it's a girlie thing!) I still refer back to the first one on many occasions.

T2W also has a journal section which is great too, as it focuses you mind knowing that everyone can read what you've put and/or see the trades as they happen.
 

Posativnrg

Newbie
1 0
Another decent free daily journal is idailydiary http://www.splinterware.com/products/idailydiary.htm. You can import daily charts and write commentary etc. You can insert tabs for each day to seperate setups, results, thoughts, etc. I notate, mark trades, etc. on a chart in a paint program and import it into idailydiary.

Posativnrg
 

steenbab

Junior member
13 2
Thanks, Jill and Posativnrg, for the helpful suggestions re: online journals. A nice feature of an online journal is that it isn't too difficult to index its contents, allowing you to jump through entries to follow various themes, review progress, etc. One example: I had new traders categorize markets as bull, bear, or range-bound days in their journals. We then reviewed journal themes specific to each of those market types. Very interesting to see unique themes arise in specific markets.

Brett
 

Rhody Trader

Senior member
2,620 264
Brett,

The one drawback I see with on-line journals is that their "public" nature can lead a trader to not be quite as honest as would be the case with a private journal. For people who worry about their public perception, this can become a very real problem, can it not? It goes toward the idea of an unwillingness to admit being wrong, especially in front of others.
 

JillyB

Established member
791 38
Rhody Trader said:
Brett,

The one drawback I see with on-line journals is that their "public" nature can lead a trader to not be quite as honest as would be the case with a private journal. For people who worry about their public perception, this can become a very real problem, can it not? It goes toward the idea of an unwillingness to admit being wrong, especially in front of others.
True John, but it can also help overcome a fear of being wrong as well. The step from paper trading to real trading for a novice is a huge one and a journal such as T2W has can help overcome the fear of trading for real, by being a stepping stone. I feel it can force you to be more honest in a 'public' journal both with yourself and those that read it.

What I'm trying to say is that in my private journal I doubted whether my system would work for real. The journal is the stepping stone - I post live (as much as I can) I trade £1 per point and I gain confidence. So I think a 'public' journal has its place.
 

RUDEBOY

Experienced member
1,157 6
The psychology behind a public journal? Is this self trickery? Or self proposed? I don't want to hurt anybodies feelings.....but there is no need for it! The purpose that you think it is for is not the real reason, honestly. RUDEBOY.
 

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