Keeping a Trade Journal

If there is a single factor that is common to those who fail in trading, it is the failure to keep and make use of an adequate trade journal. Many traders have the idea that the purpose of a trade journal is accounting or bookkeeping, and given this notion, they quickly become bored and abandon the trade journal completely. Of course, this not the purpose of a trade journal. The primary purpose of the trade journal is one of discovery: discovery about one-self and discovery in relation to the market.

Self-deception is an ever-present factor in trader psychology. Part of this stems from a common operating belief that “things go wrong” not because of one’s own actions, but because of the actions of others. In addition to this factor, problems of selective memory are so rampant, particularly in relation to emotion-based traders, that the only cure is accurate and precise use of the trade journal. Many traders lose partly because the factors they are trading on amount to a desire to lose. Traders become inhibited in writing out precisely what is operating because in their experience, these factors operate best when they are hidden. Even when the trader is engaged in hiding them from her or himself. Self-delusion is a major occupational hazard in the business of trading and investing.

In general, the first step toward the alleviation of trading problems is the revelation of “secrets”. Any trader will profit from a “telling” of the results of the day’s activities. There are two parts to this. The first is to tell oneself. Here, in addition to making the trade journal entries, one must always know the state of one’s performance. This should always be current, and one should know it without fail. The second is to tell someone else how you did today-someone who is important to you. It is astonishing how frequently traders refuse to track their performance and fall into secrecy. This is the beginning of many levels of self defeating activity that finally lead to a common plight: not only the risk of ruin, but the reality of ruin as well.

Trading journal entries must include the price and basis for each entry, target, and stop. In addition, context variables should be noted, and the trade should be tracked as it unfolds. The more focused on the chart one can be, the more focused will be the important observations that will prove beneficial. The most difficult part of the journal entry is recording what happens once one is in the trade. Being in a trade always produces experience factors that are not present otherwise. It is always a challenge to record these factors honestly and accurately. This is where most traders begin to fail: by refusing to write down the contents of one’s actual experience- the fantasies, then fears, the wishes, the upsets, the enthusiasms, and so on. The “outer” context factors must be recorded as well: listening to the news or the commentator, the play caller in the chat room or others of any kind or description.

This sounds like a terrible chore, and indeed it is a chore, but the potential for learning about oneself and about the market that comes from this is available nowhere else. Only in your own experience can you find your interface with the financial markets. That is your individual space that no one else knows. Your obligation as a trader and investor is to know that space as well as you are able to and to become as responsible as you can be for what takes place there. The trading journal is instrumental in accomplishing. Consider it an essential and never ending tool in your education as a trader.

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