Learn from Your Mistakes: Keeping a Trading Journal

There are plenty of trading journal software applications available. But it doesn’t need to be that complicated. A composition notebook or spreadsheet might be enough.

• A trading journal should be more than just a log of transactions.
• Traders battle the market and their own biases at the same time.
• Your trading journal should include these nine items.

A trading journal is a way to track your trading performance. By recording your trades, you can review your executions to improve your performance by learning from both your winners and losers.

After all, market conditions are always evolving, so traders need to continuously educate themselves to discover what strategies are working well and when they might have lost an edge.

Yet a trading journal can and should be more than just a log of entries and exits, profits and losses. Traders can write down their thoughts, emotions, and observations during pre-trade and post-trade analysis. As much as traders battle the market, they are also battling their own biases. Keeping a trading journal allows a trader to identify their strengths and weaknesses with relative ease.

What goes into a trading journal?

There are plenty of trading journal software applications available. But it doesn’t need to be that complicated. Go to your local pharmacy and pick up a composition notebook if you like to handwrite, or simply use a spreadsheet on your computer. Either way, you should include these nine items when journaling a trade:

1. Date and time
2. Traded product/contract
3. Position size
4. Trade direction/strategy
5. Entry price, date and time
6. Exit price, date and time
7. Profit and loss
8. Market-condition analysis
9. Psychological state

5 reasons to use a trading journal

Keeping a trade journal takes time, but it’s a worthwhile exercise if you want to become a better trader. You learn about patterns in markets, but you also learn about yourself: the time of day you perform best; the right mindset when finding profitable opportunities; and how to overcome your shortfalls in an objective fashion. Here are five reasons why you should keep a trade journal:

1. Creating a routine: Initially, adding another task to your trading may seem burdensome. But numbers don’t lie, and having a consistent log will allow you to dispassionately figure out what’s working and what’s not. And having the discipline to record your progress will help you build a concerted process in your trading efforts.
2. Figuring out strengths and weaknesses: What’s your most successful trading style? Or trading strategies? Or timeframes? Having these data at your disposal will allow you to do less of what’s holding you back and more of what’s propelling you forward. In reviewing my trading journal, I learned that my least successful trades were intraday scalps – so I stopped scalping! In turn, my results improved by eliminating my least successful executions.
3. Improving risk management: Are you taking profits too early and letting losers run longer than you should? Are you scaling your position sizing incorrectly? Answers to these questions will be easily identifiable from the data gathered in your trading journal.
4. Market conditions and patterns: History doesn’t repeat, but it often rhymes. Under certain market regimes, certain types of assets move closely together while others trade opposite to one another. Logging these observations will create a reference database for you to review when you run into similar market conditions in the future, then easily identify what strategies were profitable and what mistakes to avoid again.
5. Conquering the market—and yourself: Trading is not just a battle against markets, but a battle against yourself. Everyone has cognitive and emotional biases that they struggle with over time. Keeping a running tab of your emotional mindset before, during, and after a trade will allow you to identify and correct any mistakes in your approach before they cost you in the future. Trading is a constant learning process, not just about markets but how you deal with mental adversity.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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