The trading journal is one of the most underrated tools in the world of trading. The task of keeping such a journal can seem tedious in the beginning, and most traders lack the patience and discipline to update it frequently. Nevertheless, for those who keep a trading journal over the long-term, it could prove extremely helpful on the journey to become a successful trader.
A trading journal is much more than a log of trades that were executed. It can be whatever you make out of it. Traders can write down their thoughts, emotions and observations. It is important to take note of an important observation as soon as possible, as some of it might get lost during a hectic trading day.
Let’s have a look at the two main reasons why traders do not start a trading journal or fail to be consistent with it.
It can appear time-consuming to keep a trading journal, especially if you are a short-term trader. Especially beginners will often say: “I don’t have time to keep a journal, I have to watch the markets!”
Indeed, as a trader you make money by identifying good opportunities and not by writing a journal. However, one does not have to write down a note after every single trade, but instead make short notes after spotting something important. In the evening hours – when it is usually less busy – you can then put together a quick summary about the trading day and the key conclusions.
Keeping a journal should not be a forced activity. If it is quiet in the markets or if there are no new observations worth writing down – there is nothing wrong with skipping it.
2. The truth can hurt…
A trading journal is most efficient when a trader is honest to him/herself. That does not mean that there should be too much negativity. Comments like “I had a terrible day! I’m wondering if this is worth my time and if I will ever succeed” won’t make you a better trader. Instead, make observations and try to identify what exactly went wrong.
Example: “I identified a good trading opportunity, but due to an overflow of information I became insecure and closed my trade way too early.”
What could be the solution to that? Perhaps the trader in this example is spending too much time on Twitter and the tweets from various sources make him/her feel insecure.
Now, let’s have a look at how a trading journal could help you improve.
1. Finding the right trading style
If you are day trading, but your journal clearly shows that you are often stressed out and fail in managing the risk correctly, perhaps you are more a swing trader. Trading medium/long-term is not any easier than short-term trading, but some traders are more comfortable with it, as they can spend much more time analysing and do not have to make quick decisions.
2. Identifying your strengths/weaknesses
If you are consistent with your journal, certain patterns should emerge over time. You should be able to identify your key strengths and weaknesses, which will help in finding the right trading style and strategy.
3. Source of Information
There is no trader that knows everything and can afford to stop learning. The markets are evolving all the time, strategies stop working and edges disappear. Therefore, traders need to educate themselves continuously. One way of doing it is by making observations about the market and taking note of those. Perhaps one of those observations will turn into an edge one day?
After some time, keeping a trading journal will not appear so tedious anymore, but as a normal part of your trading day. It will help a trader to be more consistent and teach him/her discipline.
5. Numbers don’t lie
If you keep trading statistics as part of your trading journal – even better. Along with your own observations, the stats will give you important insights.
Starting a trading journal is fairly easy, but being consistent is the difficult part. Furthermore, a trading journal is very personal. There is no correct way of doing it, as every trader must know him/herself what is most important and how he/she wants to structure it.