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Trading Journals

  
  Education
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The image to the left should be recognizable by most of us as the American alphabet. It is from these 26 letters that billions of people are able to communicate on a daily basis. We learn the alphabet early on with rhymes and rote memorization so that we may contribute to society through our interactions. We all progress at different speeds, but eventually we all get to the point where we can recognize all the letters in the alphabet. It is at that point that we build upon that foundation and begin to spell words like C-A-T and T-R-E-E. These words are then combined to form sentences which consist of several words. From those sentences we form paragraphs and so on until we are able to write and communicate with others through pattern recognition.

This ability of pattern recognition isn’t anything new or even earth shattering–it’s common sense. Just like the alphabet, which is in a pattern, we can discern the different patterns in lots of things. Take a look at the image below and you can recognize a pattern as well where there are higher highs and higher lows. Unlike the alphabet and some other patterns that have a beginning and an end, some patterns are continuous. Such would be the case for a chart that shows price action in a publicly traded company.

We could begin to see patterns in the line above and learn to predict or assume what has the higher probability of occurring next. As an example, looking at this pattern above we might safely assume that the odds are greater that the line will move lower from here as it has in the past. This does not necessarily mean that it will, but the odds are in the favor of such a move. It is this assumptive process that will serve not as an ends, but more of a means to and end. This pattern recognition assumes that the next move would be lower and thus helps us to proceed further. Information that we’ve gathered from the past can help us predict what the future may hold and this is the basic tenet of technical analysis.

Technical analysis can even be performed on your own trading account and patterns begin to emerge where you can recognize when your trading is “on” as your account grows and when the dollar amount pulls back you can assume that your trading is “off.” This ability to recognize the patterns as your account fluctuates in price is a decent beginning, but nowhere near the wealth of information that can be gleaned from your trading history.

Trading journals are one of the most underused indicators that every trader has at their disposal. Why is it that such a powerful indicator is underused? I’d venture a guess that a majority of traders don’t keep a trading journal because of the time it takes to keep one. I could be wrong, but over the years as I’ve mentored traders from all walks of life, time was the number one reason for failure. Second on the list was not knowing what a trading journal was so after reading this article, you now have no excuses as to why you don’t keep a trading journal.

Below is a list of what I’d recommend to have in a trading journal and, as with anything in life, you’ll get out of the journal what you put into it.

•Date
•Symbol
•Position
•Setup
•Current Market Conditions
•Expectations
•Price Target and Reason
•Stop Price and Reason
•Entry Time and Reason
•Exit Time and Reason
•Outcome Of Trade and Analysis

 

If you are able, ATTACH CHARTS TO ALL ENTRIES! Remember the pattern recognition? Something may not have stood out in the heat of the moment, but several weeks later you may see similar chart patterns to this one. It is at that time that you begin to find common threads and themes of your trading which will allow you to exploit those things you do well and avoid those things you do poorly.

The above should be easily done and would suffice for the most part. However, if you really want to excel at this then a comment section is where the real clarity comes from as you listen to yourself. Take a moment and run through questions like this to get a better understanding of what’s going of for you at that moment and document it. Here’s some examples of what you could ask yourself:

•Why did you allocate what you did to each trade?
•Why did you enter the trade?
•Did it meet all of your criteria?
•Why did you trail the stop where you did?
•Why did you exit when you did?
•How is your percentage reliability of trades over time?
•Does it fluctuate? If so, why?
•What do you think about each trade as you make it?
•Are you most nervous about your best trades?
•Does your gut tell you anything consistently?
•Which trades worked the best and worst?
•Were there any common elements of your trades?
•Are there blocks you notice that cloud your objectivity?
•Are you making the types of returns that were your goal in terms of risk/reward?
•Why or why not?
 
If you take the time to address questions like these then patterns will begin to emerge and you begin to understand yourself and your individual trading style. As I’ve said before, you need to treat trading as a business as doing so helps you control your emotions. It is impossible to not be emotional when trading but it is possible to control your emotions.
 
The last suggestion I would have is that you simply open up a blog and use that as your trading journal. There are several free services out there that allow you to create a blog and upload images, etc. The neatest thing about using a blog for your trading journal is the search function as each post or entry you make allows the use of tags or keywords. As an example, for every trade you make that is bullish, put the keyword bullish as a tag and later you’ll be able to search for that keyword. With a few clicks of the mouse you can see every entry that you ever made in your trading journal that has the tag bullish in it. Take a few moments and read through them and start recognizing patterns.

Conscientiousness and Trading

  
  Education
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  • Self-Efficacy. Self-Efficacy describes confidence in one’s ability to accomplish things. High scorers believe they have the intelligence (common sense), drive, and self-control necessary for achieving success in trading. Low scorers do not feel effective, and may have a sense that they are not in control of their trading. However, consideration needs to be given to motivation for success as complacency with the way things are may be the reason for a low score.
  • Orderliness. Traders with high scores on orderliness are well-organized and stick to routines and schedules. They tend to make trading plans and use them. Low scorers tend to be disorganized and scattered. Trading plans are viewed as not being important as rules are too confining.
  • Dutifulness. This scale reflects the strength of a person’s ability to stick to a trading plan. Those who score high on this scale have a strong sense of moral obligation. Low scorers find trading plans overly confining and thus less likely to follow or even create one. Perhaps trading is seen as more of a “hobby” or just for “fun.”
  • Achievement-Striving. Individuals who score high on this scale strive hard to achieve excellence. Their drive to be recognized as successful keeps them on track toward their goals. Low scorers are content to get by with a minimal amount of work, and might be seen by others as lazy.
  • Self-Discipline. One of the largest contributors to success as a trader is self-discipline. High scorers are able to strictly adhere to a trading plan and stay on track despite distractions. Low scorers procrastinate, are easily discouraged and show poor follow-through. The lack of self-discipline will make your trading career rather short lived.
  • Cautiousness. Cautiousness describes the disposition to think through possibilities before acting. High scorers on the Cautiousness scale take their time when making trading decisions and manage risk well. Low scorers often trade without deliberating alternatives and the probable consequences of those alternatives. Scoring too high on this scale can have its downside as trading opportunities may be missed for the discretionary trader. The more mechanical systems trader will account for this through their strategy.

17 Keys To Success

  
  Education
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Jim Rogers’ Keys to Success (taken from the titles and sub headings of each chapter of the new book, “A Gift To My Children”):
1. Do not let others do your thinking for you
2. Focus on what you like
3. Good habits for life & investing
4. Common sense? Not so common
5. Attention to details is what separates success from failure
6. Let the world be a part of your perspective
7. Learn philosophy & learn to think
8. Learn history
9. Learn languages (make sure Mandarin is one of them)
10. Understand your weaknesses & acknowledge your mistakes
11. Recognize change & embrace it
12. Look to the future
13. “Lady Luck smiles on those who continue their efforts”  
14. Remember that nothing is really new
15. Know when not to do anything
16. Pay attention to what everybody else neglects
17. If anybody laughs at your idea view it as a sign of potential success

5 Thoughts for Traders-Must Read

  
  Education
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1.  We want all trades to be winners. The foolproof system for trading profits is attractive and the seller of such systems can be convincing, yet the profits are elusive.  The market could care less about our system, a past trading record, or the trading record of the one selling the system.  You do know that the market’s attorney requires that the following be posted in a prominent place…like on our foreheads beside the big L sign!: “Past results are not indicative of future returns.”  By the way, the market says, “you’re doing it wrong”.

2.  We want to add to losers. The last time I checked the only reason we add to a loser is when the discussion is about our weight!  Get on the scales and add up more losing pounds!  Be the BIGGEST LOSER!  The market, however, says the way to tip the scales in our favor is to add to the winners and lighten up on the losers.  To do otherwise is to “do it wrong”.

3.  We want to be right.  Two wrongs don’t make a right in life but in the stock market two wrongs (and plenty more) will help you get on the right road to making money.   The market says the trading game is about making money not about stroking the ego.  The “right” road is the “wrong” road when your on Wall Street.  Hey, if  you doing it to be right, then you’re “doing it wrong!” (more…)

Great lines from :Ed Seykota

  
  Education
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“In The Trading Tribe, Ed extends his paradoxical insights about trading and life. ‘We need to experience our feelings. If we resist them, we wind up creating dramas in our lives and in our trading so that we have to experience them.'”

“Everyone knows traders who violate their rules, second guess their systems, give up on winners, stick with losers, and swear they won’t do it again…. Rather than counseling strength, steely discipline, or automation, Ed again turns apparent common sense on its head,. He encourages traders to embrace and celebrate their feelings, especially the ones they are unwilling to feel.”“‘Win or lose, everybody gets what they want from the market. Some people like to lose, so they win by losing money….'”

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