Keeping a Trading Journal

|

Do you keep a trading journal? You probably should.

What keeping a trading journal means is to write down, either in real time or at the end of each trading session, details of all the trades you made and why you made them. It can be easy to fall into the trap of thinking that you don’t need to do this or that you will look back at the end of the week and remember everything important – you almost certainly won’t. Trades often look very different in hindsight from how they looked at the time, and if you keep a trading journal you will understand how this is so. This can be a great antidote in the future when you want to take a trade, but are frightened because it does not look perfect. If you have kept a trading journal, you will see exactly how many trades come along that look less than optimal, but turn into huge winners if taken. If nothing else, keeping a trading journal will show you just how uncertain trading really is, and how unpredictable the market can be. This should help disabuse you of any idea you might have that you, or anyone else, can ever forecast the future outcome of trades with very high accuracy. Someone who is widely agreed to be the best trader of all time, Jesse Livermore, said that he thought it was impossible to predict short-term market movements with anything greater than 70% accuracy. That was his maximum – and remember that he said this 100 years ago, and since that time markets have become more chaotic and unpredictable still. Trading

Jesse Livermore kept a trading journal, and when the market closed at the end of each trading day, he would remain in his office for an hour or so, going over the details of every trade he had made. He did this to learn from both his mistakes and his successes, and he continued to do it after he had made billions of dollars from a seed capital of only few hundred. You should do it too, because what you learn about your trading when you analyze every trade should help you improve, and there is always room to improve.

Of course, the trading software provided by brokers which we all use can automatically record the basic price, quantity and time information. What you need to worry about in keeping a trading journal is taking screenshots of the chart and saving them plus making notes about why you took each trade. This information will help you later. It is also a good idea to keep notes and chart screenshots about trades you decided NOT to take, as you can analyze that information later to determine whether you are making good decisions, on balance, as not taking certain trades can be just as important as taking others: it is all part of your profit & loss statement. The most important thing you can learn from a trading journal at the start of your trading career is probably whether you are too fearful or too greedy. Once you learn that, you can try to modify your behavior accordingly, and a better profit & loss statement should be the result!

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment.