Build a routine that becomes the foundation
of your success in trading or investing.
It is imperative that you keep a trading journal. This is not a new practice and all successful traders keep records of their past trades.
Why is it so important?
The simple answer is we have to develop a learning loop. A learning loop is an attempted performance, followed by specific feedback about the success/failure of the performance, followed by renewed efforts that incorporate feedback. In another words, we build our skills on examining our practices, performance, behavior, gaps in knowledge and so on.
Why then if it is so important many (I should say most) traders ignore it?
There are a number of reasons to answer the question Why Keep a Trading Journal, but the main one is because they are not taking trading seriously enough to consider it as a BUSINESS. However, the unfortunate outcome is “if it is not a business, then it is a hobby and as with any hobby, you lose money”. In case of day trading, it is not a part-time business either. The truth is even 9 to 5 would not make you rich. Think of it this way, as a trader you will have to become accountant, analyst, manager and secretary.
Furthermore, self-discipline becomes vital when there is neither boss nor enforceable rules in place. The bottom line is you need a Trading Journal to keep yourself organised and accountable. And believe me when you start writing your mistakes on paper you would think twice about breaking rules or repeating mistakes. This is what we call a learning loop, otherwise you simply run in circles repeating the same mistakes till you run out of money!
We will give you a sample Trading Journal, but while trading statistics (entry/exit dates and price, profit, etc) might be common for all traders, the rest of the journal has to be customised. There is no point recording numbers that do not make sense to you or are not important to your trading system or style.
Your Trading Journal has to be based on your Trading Plan and provide you with a continuous feedback on your performance (both trading and emotional).
You should also remember that your aim is to reinforce your strong points and identify your weaknesses. If you do not have a trading plan or trading system examining as yet your Trading Journal will help you to identify your strong points, what you like and don’t like about trading, what time frame you like to trade and why, and so on. This information will help you to critically review what sort of trader or investor you are or maybe you should avoid trading altogether.
The last and probably the most important point: every time you identify a weakness or gap that affects your trading performance, ACT on it. There is no point keeping records if you are not going to use it in improving yourself and in turn your business. Remember, this is a continuous journey and you have to help yourself to develop in your new profession (if you see yourself as high school student as compared to Warren Buffet, then imagine how many years of study and practice you have to go through).
In our example we combined daily routine and Trading Journal in one document. You can format it the way you think it would work for you.
This is how we structured our Trading Journal
Start with a clear disciplined mind Trading Meditation
1. Intelligence Gathering
Review overnight performance of overseas markets/Commodities/FX
Economic Calendar, Ex-days, reports and analysis scheduled for today
Note Pivot Points, Support and Resistance, Fib numbers, High and Low or any indicators that you use
2. Plan your day
Write what you planning to trade.
Your thoughts in regards to today’s market conditions.
How do you feel emotionally today?
Do you expect any interruptions today?
3. Adjust your stops and enter trades
Record your trades (including reasons for initiating a trade, your emotions when opening the trade and exit strategy)
Take screenshots of your trades
LUNCH TIME/STUDY TIME
Evaluate your morning game plan (how did things really play out? How did you react? Did you stick to or stray from your game plan, and why?)
Prepare an afternoon game plan (create it over lunch, say, before the afternoon session begins).
Evaluate your afternoon game plan. A quick retooling of strategy could pay off in the second half.
END OF TRADING DAY
Strategy portfolio management and maintenance – recalculate and verify if the balances are correct and if any instrument has gone outside the percentage of the portfolio.
Ask yourself: what did I do well today? What could I have done better? Am I a better trader today than I was yesterday? If so, why? In other words, what exactly have I learned? Use this step to dig deep and engage in some genuinely tough self-analysis. A day without learning is a wasted day in a trader's career.
List all your trades that appear to be working and all those that aren't.
Call the market – is it range-bound? Trending? Which sectors are in play?
Rate your concentration/focus on a scale of 1 (low) to 10 (high), e.g. your level of focus, concentration for the day.
Compare what you’ve done today to your morning notes
Plan for tomorrow: which trades should I pay attention to tomorrow? My goal for tomorrow is?