Summary: Keeping a Trade Journal

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Keeping a Trading Journal

Put your thinking caps on boys and girls! It’s time to test your knowledge on how to properly journal your trades!

Keeping A Trading Journal Is Hard But It’s Worth It

Keeping a trading journal is hard.

But so is losing all your trading capital, failing as a forex trader, giving up, never to return to forex trading ever again.

And reminiscing about the good ‘ol simpler days of being happy when there were only five TV channels to choose from.

Which would you rather choose?

Entering trades in a journal forces you to view the trades in black and white, rather than simply relying on your memory, which for most humans, is a stretch.

More importantly, a trading journal allows a trader to step back and view their trades as a group of trades, and not as individual and ultimately random transactions.

Boy, this sounds like a lot of work, doesn’t it?

Heck ya, it is, but doesn’t anything worth achieving require work?!?

Keeping a trading journal is the equivalent of an athlete’s practice.

It’s not uncommon for a professional athlete to spend far more time practicing or training for an event than actually participating in it.

According to Tim Grover, Michael Jordan’s personal physical trainer:

“Michael would go for 40 or 50 points one night, and the next morning he was right back at it in practice. He just couldn’t take a day off. His mental toughness was unbelievable, but the reason was that he was so physically ready every day. He used to have a saying, ‘I practice so hard because that makes the games easy for me.’”

John Wooden, winner of a record 10 NCAA Men’s Basketball Championships, and known as one the greatest minds basketball has ever known, ran a very strict and disciplined two-hour practice, 5 days a week, in preparation for a 40-minute basketball game.

Do you know who much time that is? That’s 10 hours (or 600 minutes) of practice for 40 minutes of the real thing.

And that’s not all! Not only did he stress meticulous and deliberate practice, but he also kept a LOG of how every practice went.

Coach Wooden would refer to his practice logs if his team had a problem he couldn’t solve.

For example, if his current team was shooting poorly, he would research his old practice logs to determine how they could improve their shooting.

Even in the days of no computers or iPads, Coach Wooden understood the importance of strict record keeping!

While the act of journaling really isn’t that hard, it is a time-intensive process that will require consistent effort.

Reviewing Your Trading Journal

After a good number of trades, you will have collected a lot of fancy-schmancy data and observations on the market and yourself…how do you analyze it all??

It’s pretty simple:

1. Find what works and keep doing it
2. Find out what doesn’t work and stop doing it.

And finding what works and doesn’t work is all about keen observation and asking the right questions.

Refine your analysis of your trading results by breaking them down into smaller categories, such as day of the week or specific currency pairs.

Here’s a sample of the types of questions you should be asking yourself when you review your journal:

• Which chart patterns or technical indicators work out best for you? Which do not?
• How can you adjust your indicators to get you in trades earlier, or help you avoid whipsaws and fakeouts?
• Are you closing winning trades too early? Is it that you need to adjust your profit targets or are you afraid of losing your unrealized gains?
• Do you hold onto losing trades longer than you should? How can you improve your stop-loss processes?
• How often do you follow your trading plans? Of the ones you do follow, have you been profitable?
• What trade setup did you miss, or not take, and why? Was it a legitimate signal or setup according to my method or system?
• What could you have done differently to make prevent/reduce this loss or maximize your gain?
• Are you winning more on trades with multiple lots or single lots?
• What kind of market environments have you been doing well in? Trending or ranging?
• Were most of your wins or losses biased towards certain currency pairs?
• Which news events have brought on the kind of volatility you were looking to trade or avoid?
• Which trading sessions have been the most favorable to your trading style?
• Are you losing trades concentrated on certain days of the week, such as Mondays and Fridays?

Questions like these can help you quickly filter out the actions that have kept you from making some pips.

In the beginning, the idea is to get to the point where you have figured out what works for you and to only do those things.

Once you have figured out those right things, the next step is to consistently practice those actions that work until it becomes a habit.

Finally, persistent journaling will help keep you on top of your performance and help you recognize when the markets change–and yes the markets are always changing.

Trading Performance Statistics

While your bottom line (total profit or loss) can easily tell you your overall trading performance, keeping statistics is a great way to find out what parts of your trading system are keeping you from running like a finely tuned race car instead of a junkyard clunker.

Your “performance stats” help you determine what’s working, what’s not working, and what to improve on.

Here are some of the statistics to keep, at a minimum, to track your system vitals.

Net Profit

Your net profit is your total gain minus losses and expenses. These expenses include the cost of equipment, commissions, and other costs. Basically, this is how much your account is up or down at any given time minus costs to trade.

Win %

Win percentage is the total number of wins divided by the total number of trades. What percent of the time do you win trades?

Loss %

Loss percentage is the total number of losses divided by the total number of trades. What percent of the time do you lose trades?

Largest Winning Trade

Your largest winning trade will be removed from your “average win” calculation.

This is not necessary to do, but if you do have an abnormally large win in relation to your other wins, then taking it out will provide a more accurate look and expectations to your stats.

Largest Losing Trade

Your largest losing trade will be removed from your “average loss” calculation.

This is not necessary to do, but if you do have an abnormally large loss in relation to your other losses, then taking it out will provide a more accurate look and expectations to your stats.

Average Winning Trade

The average gain per winning trade is computed by dividing the total gain from all your winning trades divided by the number of winning trades.

Average Losing Trade

The average loss per losing trade is your total loss from all your losing trades divided by the total number of losing trades.

Payoff Ratio per Trade

The payoff ratio per trade is your average winning trade minus your average losing trade.

Average Holding Time per Trade

The average holding time per trade is calculated by dividing your total holding time for all your trades by the number of trades.

P/L of Long Trades vs P/L of Short Trades

This stat helps determine what types of trades or trading environments you perform well in.

Largest # of Consecutive Losses

This stat helps in determining your max drawdown, or the worse possible scenario you have experienced so far.

Average # of Consecutive Losses

This stat helps in determining your average drawdown and controlling your potential max risk.

Maximum Drawdown

The maximum drawdown is the worst period of “peak to valley’” performance of your trading system.

Trading Expectancy

In simple terms, expectancy is the average amount you can expect to win (or lose) per trade.

This can be computed by multiplying the loss percentage by the average loss and subtracting it from the win percentage times the average win. This stat helps you determine the correct position size and how profitable your trading method is.

Tracking Feelings and Mistakes

Your mental state can’t exactly be tracked as a “statistic” but you should record it nonetheless.

Keeping track of how you feel will help you avoid trading during those frustrating times–like when you wake up right after a news event (that you forgot about), and it pushes the markets fast, so you try to chase it.

But then your computer crashes, you lose power, and your dog goes running out of the house into oncoming traffic.

By the time you get back online you see the market has moved 100 pips in the direction you wanted to buy. Don’t you hate it when that happens?

You’re probably not in a good mood by then, so trading for the rest of the day may be a bad idea.

Ideally, you should be keeping track of these statistics so that you can compare and analyze your performance over a set period of time.

For example, at the end of the year, Huck releases her year-end trading review.

After going through her trades, she could see that she was actually unknowingly taking trades against the trend!

Knowing this, she can adjust her trading so that she can avoid going against the trend and this will hopefully lead to better trading performance.

The goal of collecting and calculating these stats should be to find ways to maximize your expectancy (pips or dollars gained per trade), set the correct position size per trade, and determine the trading conditions best suited for YOU!

Trade Retrospective

Being retrospective means to take a look back at events that already have taken place.

Once you’ve finished trading, it might be tempting to call up yo homies to hit up happy hour, kick back shots of Patrón, and splurge on bottles of Dom Pérignon, but it’s crucial that you review how your trade went, win or lose.

You want to look back over the whole process to understand what you did right and wrong.

Here are some questions to ask yourself:

How well did your trade work out?

• Was the position size sufficient to match the risk and reward scenarios, or was it too large? Too small?
• Could you have entered at a better level?
• What tools might you have used to improve your entry timing?
• Were you patient enough or did you rush in thinking you’d never have a chance again?
• Was your take profit realistic or a pie in the sky?
• Did the market pay any respect to your choice of take-profit levels, such as stopping short of it, or did prices blow right through it?
• Did the market pay any respect to your choice of stop-loss levels, such as stopping short of it, or did prices blow right through it?
• What news or event catalysts caused the market to move the way it did?

Use the answers to refine your position size, entry level, and order placement going forward.

How well did you manage the trade after it was open?

• Were you able to effectively monitor the market while your trade was active? If so, how? If not, why not? The answers to these questions will reveal a lot about how much time and dedication you’re able to devote to your trading.
• Did you modify your trade plan along the way?
• Did you adjust your stop loss order to protect profits?
• Did you take partial profit at all?
• Did you close out your trade based on your trading plan, or did the market surprise you somehow?

Based on your answers, you’ll learn what role your emotions may have played and how disciplined a trader you are.

While you may want to vent your thoughts, emotions, and feeling to yo homies, it’s better to write them down here.

You are probably boring them to death anyway. They don’t want to hear your whining.

What can you improve and what specific steps will you take for improvement?

This is your opportunity for trader self-improvement.

Do not just write vague confessions like “I need to hold my winners longer” or “I need to cut my losses quicker” or “I need to be more disciplined”. These are totally useless by themselves.

Identify SPECIFIC steps that you will take to improve.

• How will hold your winners longer?
• Will you work on choosing a better profit target?
• Will you learn how to not freak out at the first sign of your unrealized profits falling?

There are no right or wrong answers in this review process.

Just be as honest with yourself as you can be.

And be SPECIFIC.

Otherwise, you won’t improve as a forex trader.

Did you execute your trade according to your trading plan?

DO NOT TAKE THIS QUESTION LIGHTLY.

If you are not routinely executing trades according to your plan, then you either have a serious problem with self‐discipline or there is a problem with your Trading Plan.

Either way, you have a BIG problem that needs to be fixed yesterday!

Trade Management Rules

You need to have a game plan in place BEFORE you even consider getting in the trade.

That game plan tells you how you will manage this trade, whether it goes for you or against you.

Entering a trade is the easy part, it’s exiting a trade where you’ll determine whether you make or lose money.

Be Like Tom

Two traders, Tom and Jerry, could take the same trade but have two totally different outcomes.

Tom will make money on the trade because he properly managed his trade and planned an exit for different scenarios.

Even if he loses, he will know when to stop the bleeding and get out with a smaller loss.

Jerry, on the other hand, does not have a plan in place. He does not know what he is going to do if the price goes drastically against him, eventually wiping out his account.

It’s critical to determine how you will manage the trade BEFORE you enter the trade.

You do NOT want to be making critical decisions in the heat of battle.

When you enter a trade, you should have already decided how you will react to every possible outcome.

EVERY.

POSSIBLE.

OUTCOME.

Try and figure out all the possible variations that could occur and decide BEFOREHAND what you will do.

Be Like Spock

You want to be a cold-hearted, emotionless execution robot when in a trade.

You want to be like Spock but without his human side. You want to be a Vulcan trader.

All decisions are made BEFORE a trade. You are proactive. This means you are not yet in the trade!

When deciding to enter a trade, you simply refer to what you wrote here. This eliminates any seat-of-the-pants decision-making.

If you do take the trade, you already know where your initial stop loss will is placed, where your profit target(s) are, if you will trail your stop, where you might get out of your trade early, etc.

Be Like Keanu Reeves

Pretend you’re Keanu Reeves.

If you were to be given a pop quiz at any point in time during the trade, and are asked, “What if price does this or that? What if the price goes here or there?”

“What do you do? What do you do?!”

You should be able to answer in a snap without thinking, for every single trade, every single time.

You must have your trade management rules fully planned out ahead of time BEFORE the trade is initiated.

You NEVER EVER want to be thinking “What do the hell do I do now?”‘ when in a trade.

The time to decide such things is always, always, always BEFORE you ever enter a trade yo. Word?