Most investors roll their eyes and walk away when you ask them if they use a trading journal. The general non-interest is unfortunate because most of the world’s top professional traders use journals and learn a lot from doing so. What are trading journals, why should you use one, and how can you begin creating one that will turn you into a more effective investor? Here’s a look at the answer to that three-part question.
A good journal is a precise log of all your buying and selling activities. It isn’t kept for any reason other than as an aid and a way to boost your skills. And it doesn’t matter whether you maintain it on your computer or in a paper notebook, as long as you include the important data. You can list anything you want, but at a minimum try to note dates, monetary amounts, assets bought or sold, entry signals, exit signals, the amount of profit or loss on the transaction, and your emotional state at the time of entry and exit. It’s important to comment on your emotions because this simple task will reveal whether or not you are making trades based on objective criteria or on your feelings.
The “why” is perhaps the most important part of the equation. You’ll gain a lot from this process, including the ability to understand your habits, find your faults, and uncover some of your strong points. People list all their transaction data for the purpose of self-study. There’s no better way to gain an objective view of your investing style. One of the main reasons behind the why of journaling is to monitor your discipline with respect to entry and exit signals. Do you always follow your own rules, or do you sometimes break them out of laziness, expedience, frustration, or fear?
How do you begin? It’s simple. Grab a notebook or open a blank file on your computer. Some of the free calendar or diary apps are excellent for this purpose. Decide what pieces of information you’ll include for every transaction and list those points on the left margin, with a separate column for each purchase. Leave the exit data blank until you sell the security. Don’t procrastinate. Enter the next buy you make and fill in all the information. As the old saying goes, “the easiest way to begin is to begin.”
If you trade foreign currency, for example, one way to gather up most of the data you’ll need for your logbook is archived right on your brokerage site. If you don’t know how to access past trade data, ask your forex broker and they’ll be happy to tell you. Many platforms include a built-in journaling function that provides you with a generic template so you can fill in the blanks as soon as you buy or sell a currency pair. When it comes to journals, you’ll be much more consistent if you make the entries as soon as you click the buy or sell button on your trading screen.
By now you’ll have discovered the importance of keeping a trading journal. Whether you’re a newcomer or experienced trader, if you haven’t tried this before, give it a try and see how it can improve your performance.