Introduction

Whether you are an investor or a trader, it is always a good practice to write a trading journal for all the trades performed. Although your broker or trading platform may already have functions that allows you to keep track on details of your trade, there are still many advantages of keeping a separate trading journal. A trading journal shall contain at least the following information for each trade.

•    Entry Price

•    Reason of Entry (include screen shot of charts if necessary)

•    Exit Price (Stop loss or profit target)

•    Reason of Exit (include screen shot of charts if necessary)

•    Status of the Trade (winning or losing trade)

•    Emotions when entering or exiting each trade

Below are summary of advantages that beneficial for being discipline in writing trading journals diligently.

Advantages of a Trading Journal

1.    Historical Record

Over a period of time, trading journal will provide a historical perspective of all the trades that you have made. You will be able to view at a glance of every winning or losing trades that you have made and analyse further the key factors & lessons learn from your winning and losing trades.

Over time, you will accumulate more and more winning formulas and avoidance of losing trades and hence is able to sharpen your strategy and trading system. For example, if your trading journal is in spreadsheet format with a column for trade status, simply filter “Winning” and analyse what are the common characteristics of all your winning trades. Once you figured it out, incorporate it in your current strategy and repeat the steps above to observe any increase in winning trades.

2.    Planning Tool

Your Trading Plan can be a subset of your trading journal. As discussed in previous “iVSA Article 8 - Develop a Trading Plan” (http://klse.i3investor.com/blogs/ivsatradingtipsandplans/97390.jsp), before entering a trade, one must write down the exit rules, entry rules, and position sizing. These can be incorporated together in your trading journal as well. Once your trading plans are written down, it is always easier to turn it into action.

Hence by planning your trade properly, you will always be more confident in trading your plan in a controlled manner rather than be affected by emotions, market noises and rumours.

3.    Strategy Verification

A trading journal can be useful in verifying your trading strategy. Similar to back-testing your trading plan (that we have discussed in previous “iVSA Article 9 - Back Testing your Trading Plan” http://klse.i3investor.com/blogs/ivsatradingtipsandplans/97840.jsp, which is testing your strategy for a specific stock), trading journal can be an avenue to perform back-testing on your trading strategy/system by reviewing the past records of your winning versus losing trades.

For example, if your strategy is to place a trade on a fundamentally sound company right before its quarterly announcement, you can perform both back-testing your plan on the stock itself and this particular strategy based on your trading journal if this strategy works on a similar trade setup of other stocks previously.

4.    Correcting Bad Habits

Trading journal should not only record successful trade but also losing trades. More importantly, trading journal should be a platform to record all trades, especially mistakes which are caused by bad habits, emotional mindset and self-denial to review & discuss losing trades.

For example, many traders have the bad habit of taking their profit too early and fail to cut loss fast. If this is written often enough in your trading journal, it will enforce these learnings to prevent it from happening again. When you are able to be discipline to rectify your bad habits, lessons learnt and mindset over time, your will be able to achieve more winning trades consistently.

Conclusion

It is not easy for traders to be discipline in keeping a trading journal, especially when the decision of a trade is made in a spontaneous manner. Our advice to beginners or newbies traders is to start with a trading journal that is short and simple so that there is less resistance and less effort to document each trade. Gradually, you will be able to enjoy the fruits of your labour when you discover your winning strategy and avoidance of losing trades through regular review of your trading journal. As you progress, your trading journal will become more systematic and detailed, which again will help you to achieve more winning trades consistently. Remember this – “Failing to PLAN, is planning to FAIL!”

Watch out for next article in this series of education articles brought to you by iVSAChart, “Article 12 – Portfolio Management” under Series B: Preparation Before Trading or Investing (what professionals worldwide are practicing).

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.