Monday, May 25, 2009

Pin It

Widgets

Why You Should Keep a Journal to Track Your Trades?


Whether you are an employee of a corporation, self-employed, stock trader or a business owner the simple process of keeping a journal for your activities can work wonders towards your success. This is recommended by success experts and organizations as well. In my observation I hardly find any trader who keeps a daily record of their trades other than me. But several authors of best books I had read, have done this.

trading journal helps stock trading successImage Source

If you want to trade consistently and successfully, the one thing that you must compulsorily do is keeping a journal to write down all your trades. This in itself is a time consuming activity. But it pays off in the long term. Many traders like to call themselves long term investors but they miss to see things that are helpful in the long term.

It Helps You to Learn to Trade Well by Yourself

You should write a journal for all your stock trades if you want to learn by yourself in this ever changing stock market. You cannot easily find many people willing to teach stock trading courses whether it is over the internet or offline. The most important secret to success in stock trading is to learn by yourself and not just by listening to others.

When I say learn all by yourself I mean that you should be convinced about the ideas you have. You should build right beliefs for strong foundations. Even if you listen to others ideas you should be able to discriminate between what is right for you and also be able to analyze its effects from your perspective. Because at the end of the day you are the driver in your vehicle.

A trading record goes a long way to help build a successful system of trading that results in consistently right trades. Trading well consistently in the stock market is very important to progress. If your odds are always against you or even for half the time, then you cannot even expect to survive your capital. That will depreciate sooner than you thought.

The Importance of Your Trading Journal

Only by trading right consistently or in other words the right bets coming one after another, you can accumulate positive momentum for your portfolio instead of a negative momentum. If this is not the case, then the costs associated with several services will slowly accumulate and depreciate your capital soon. This is not a zero system where what one loses another gains. But quite a different one. For the context it is a negative system meaning for every move in the market a fixed amount of money is taken out from the system.

If you rely on just your brain to do the task of tracking your trades, you will not be different from the ordinary traders. You will definitely learn some mistakes but there can be hidden patterns between trades that you might not see directly. When you note down your trades in a trading journal, you will also note down the reasons for entry and exit for that trade along with other information.

This information will soon be forgotten if not written down. When you forget the reason for entry on a successful trade and a failed trade, you will continue to repeat atleast one mistake out of all that you ever did. By writing it down you will have a complete picture of the journal in your mind along with its hidden lessons. This helps you to be always conscious of a powerful system of learning and application.

Uses of Your Trading Journal

No matter what kind of profession you take, keeping record of your activities will do more help than any other kind of activity. Writing a journal lets you look at yourself in a mirror. You may be looking at your physical body regularly in a mirror. But to look at the reflection of your activities and your hidden identity behind them, a trading journal will take you a long way.

When you look at it periodically, it will reveal things that cannot be easily detected on the outset. It lets you know what are the unimportant things, where you can focus your energy more, what are the mistakes you are committing repeatedly and also if you are making enough profits out of each trade on the total capital.

Many mistakes are committed in trading stocks again and again simply because of a subconscious behavior of a trader. If you continue mistakes without control then they become your foundational skills, habits that will work automatically whenever you repeat the same action. That means you will no longer have the next good bets even if you are trading the best stocks at any time. Unless it is a blind powerful bull market of all time like the one in 2007, this applies all of the time.

Knowing the importance of a trading journal is the first step to becoming a successful stock trader. I learned the importance of it when I started trading stocks and went into a losing streak. I wanted to know what is going on and why I was doing the seemingly similar mistakes again. When I started new month and new financial year after a streak of losses, I not only started with new learnings but also started with a new journal.

I recorded all of the trades in 2007 except 2 or 3 insignificant trades of less value that happened by mistake or accident. That is what made me become a better trader with each trade. The lessons I learnt are still in my belief system but I only need to take a look at it periodically to be consciously aware of them.

There are Perils to Not Doing This..

There are negative consequences in not doing this activity. I did not record a single trade till now in all of 2008. I knew something was going wrong but I did not update my journal due to negligence on my part. I knew I could make a little time out of my busy life but I just did not.

As I look back why my trading went wrong when I started well in the beginning of the year, I see that it did not go worse overnight. It changed gradually with each trade. It was like unlearning the past lessons until I stopped trading. I stopped this vicious circle or downward spiral to calmly take a look at the whole picture before starting next time.

What Should You Note in A Trading Record?

When writing your trading journal, treat it as the most important activitiy and do not miss to fill it on any day. If you miss, make a commitment to fill it by the next day or within the same week. It is important to fill it as soon as possible because you will tend to forget certain things associated with the trade. You should not only note the obvious things like entry price, quantity, exit price, stock quote but you should also note down other details.

You should note the entry and exit dates and the difference between them showing how many days/hours you were in the trade to see the time potential of the trade.

You should also note the profit, profit after cutting trading costs, and percentage profit. This gives you an idea of the minimum limit for profits. If your profit value is negative then it is a loss. It is better to have a separate entry for that so that when you count the total profits or losses you can total them individually. That will let you know whether you are consistently right, average trader or trading on the edge being close to going broke!

You can add many other things but the most important are the reasons for your decision to enter and exit the stock. Add any new learning you made from this trade.

You can maintain a note book specifically bought for this purpose or a spreadsheet document. It is easy to keep a clean spreadsheet as you can add more columns later on and also easy to edit it in the same sheet.

In my initial search for improving my trading I found many experts suggesting the trading record as the single most important activity. It was easy to ignore at first. Many successful traders as well confirmed that they did keep a trading journal. Because it is hard to find the best lessons in stock trading it is very important to keep our own records. You can keep it as secret so that you will not hesitate to write down all you need to note.

Start Today as a New Habit!

If you are not already doing this, I highly recommend starting it from today. Every lesson in stock trading is a costlier one and the best lessons are learned from losing trades. Don’t pay again and again for the same lessons. You may go broke before you realize what you missed!


2 comments:

haram said...

Interestingly, I have never heard about this idea, but I have been recording my transactions from the very beginning :) I just felt I needed a track of activities consisting of all the items mentioned in this article. I also publish part of my journal in my blog, showing the time duration and profit percentage of my trades. The only thing that I don't log is the reason of trades, as I am stuck to only one reason - good fundamental data showing an underestimated potential for growth.

haram said...

Interestingly, I have never heard about this idea, but I have been recording my transactions from the very beginning :) I just felt I needed a track of activities consisting of all the items mentioned in this article. I also publish part of my journal in my blog, showing the time duration and profit percentage of my trades. The only thing that I don't log is the reason of trades, as I am stuck to only one reason - good fundamental data showing an underestimated potential for growth.