How did I lose $50 on that trade last week? Did I take a $100 profit yesterday because I held the stock longer or was there another reason? How did I miss that short squeeze the other day?
Chances are that you have asked yourself at least one of these questions, regardless of how long you have been trading stocks. It doesn’t matter whether you started trading last week, last year or five years ago. Trading is a constant learning curve. The more insight you have into what went wrong and what went right with every single trade, every single day, the more you’re learning about the market, catalysts and your trading personality. The more insight you have into yourself and into your trades, the more experienced a trader you can become.
Trading is not encapsulated by the notion of making money overnight, by speculating, by a random pick on a small-priced stock that will make you into a millionaire with little thought, no planning and no understanding. Rather, the successful trading journey is a long-term affair that comes only after careful planning, studying, learning from other successful traders, learning from your mistakes—with money being the reward for what should be your well-informed trading decisions.
If you learned anything in school, it’s that note-taking is an important step towards learning. Someone who is in-the-know disseminates information, the student takes notes. The student uses those notes and then practices. The student inevitably will have some failures. Scientists—true pioneers who are trying to find a solution to a problem, or a cure or proving a theory, take great notes. They record everything. Scientists who fail to document their failures and successes in minute detail are not scientists at all—they are speculators who are unlikely to uncover what they intend to uncover.
This is why we stress just how important it is to keep a trading journal to record, track and review every trade that you make—the good, the bad and the ugly. Keeping a detailed diary helps you to learn from your trades, will help you keep your goals in the forefront of you mind and will help to tweak and perfect your strategy.
Ultimately, a trading journal helps you to grow as a trader, revealing insights that you can use in your future trades.
So, when should you start your trading journal? We think it’s critical to start your trading journal from Day 1 of your trading career—even if you’re only paper trading. If you’re among those who has already started to log all of your trades, well done! You’ve already taken a very important step forward on the road to mastering your trading skills.
So, how do you go about keeping a trading journal? That’s a great question and one that varies depending on who you are. You should have an open mind about how to journal your trading activity. But, if you’re a new trader and having worked with lots of newbies before, we suggest taking cues from already successful traders. You can tweak it later and make changes, as you become more comfortable with the process.
It’s okay to keep your trading log the way you like it and find most useful—for you. If you want to keep your own diary using pen and paper, that’s fine. If you fancy spreadsheets or something even more high tech, go ahead, log your trades in there. If you think other traders could give you more insights, use one of the many journaling programs out there. What matters is to keep a trading journal for every move that you make (or even every trade you choose not to make), because it offers several crucial advantages for improving your knowledge and skills.
Here’s our breakdown of the 5 advantages of keeping a trading diary.
#1 Track every trade
Provide detailed information into trading earnings and losses. When you have the date/hour of entry, timeframe, the move you made, size of your positions, reasons for opening/closing trades and the outcome: profit or loss, this is what we consider to be a detailed account of what you did with your trade. It’s not necessary to write/spell it all out in full structured and grammatically correct sentences (although that’s fine too!). It’s enough to record a few words and numbers or just list the bullet points. This saves time when live trade journaling.
#2 Review every trade
Journaling is great. But, it’s fairly pointless if you never review your journal to glean insights from your previous trades. This review process will shed more light on what was right or wrong with your choices and trading strategy. And, we assume you have a strategy, rather than the fly-by-night approach, which is akin to gambling. Your strategy, even if it doesn’t work, should be methodical and you should stick to it until you’ve proven that it’s the strategy that’s faulty. It’s okay to change your strategy. It’s not okay to not have one.
Reviewing every trade will help you to tweak your strategy and will assist you as you try out multiple strategies. Have you written in your journal your reasoning for opening or closing a trade? Have you written in your journal why you didn’t make a specific trade? Have you written down your thought process behind each decision? Did you include details, like price at purchase, price at exit, dates and times of execution? If you do, you should always be reviewing this information to see if you were right to act on some catalyst, news or chart. If you don’t have a reason (whether it’s right or not) for entering/exiting aposition, you probably shouldn’t have been in the trade at all.
#3 Learn from every trade
The more you review your trades and ask yourself what you should do differently next time, the more you will learn—and the more quickly you will learn. This is yet another advantage of keeping a trading journal. By recording your trades, thoughts and market observations, you are actually learning from your past actions and mistakes. When you report and flag a past mistake, you can write down what you can do next time to avoid repeating that mistake. Or, when you see what is working and successful, you can focus on learning what’s profitable for your strategy and goals. People who are willing to improve their skills and knowledge find a lesson to learn and a chance to grow from each experience—good and bad. So, let each of your trades teach you something.
#4 Grow from every trade
Our take of this advantage is that a detailed trading journal enhances your trading discipline, helps you to keep track of your trading strategy, monitor your profit-taking goals and evaluate longer-term risk-vs-reward opportunities. The trading diary keeps track of not only each of your trades, but it also keeps tabs on the progress you’re making toward reaching your goals or on your individual trading type. The trading journal is an investment in your continuous education in trading and self-discovery.
#5 Keep everything in perspective
The more you find out about markets and about yourself, the better big-picture view you will have about the whole process. Records of past trades, what went wrong or want went right and what you want to change next time, make it easier for you to adjust to new market trends. Keeping the journal and reviewing it regularly gives you insights into what kind of trader you are. It also shows you what trades or stocks work for you and your ultimate trading goal. Then, you can see how to apply what works for you to your future trades.
A bonus advantage—and it may be one of the most important and yet underrated advantages, is that journaling often helps you close out what happened during the trading day—mentally speaking. If you acknowledge your losses, write them down and write down what you should have done (and therefore what you will do next time), you can be done with it and enjoy the evening and sleep better. If you try to bury your head in the sand, losses—especially large ones—can leave your mind spinning for hours, vacillating between briefly stressing out over what went wrong and what we call the ostrich effect, which is like refusing to address what is concerning to you.
If you journal your trades and detail everything about the good and bad trades, you are properly dealing with your loss, treating it more like a business transaction. Then, you can move on with the rest of your day, already having a plan for the next day. Not journaling may leave issues unresolved, which will nag at you, whether conscious or subconscious and will interfere with your general happiness.
There is no need to reinvent the wheel here and there’s no reason to trudge off on your own, ignoring those great traders who find journaling an absolute necessity. At first, it may seem a daunting task and time consuming. But, if you give it a shot, you will come to the same conclusion any successful trader has already come to: journaling works. Ignore this advice at your peril.
Remember: practice makes perfect. With time and experience, you’ll see that your trading journal is your best companion in your journey to becoming a better and more successful trader.
If you’re new to trading stocks we’ve got 15 steps for getting you started, check it out.