Creating and Managing a Trading Journal

A trading journal is probably the most important, and most often neglected, tool in determining your success or failure in the market. Do you keep a trading journal? If so, do you've feel you've actually learned something from it?

One of the most common, and least helpful, forms of a trading journal that people use is the spreadsheet. I despise spreadsheets... We are talking a level much higher than simply disliking them. If I ask a client to bring me their trading journal and they show up with a spreadsheet showing things like stock symbol, entry time and price, exit time and price, amount gained or lost and that is all, then I just want to take that spreadsheet and throttle them with it...

What exactly does that type of spreadsheet tell you? Even if you list things you liked and disliked... if you went back a few months later would you actually be able to tell what that trade was, why you really liked it and how it compares to a trade you are taking today? If not, it's a bad trading journal. Spreadsheets will usually only tend to tell you if you are up or down. While they can tell you if you take your gains too fast, in general there is very little useful information to be gleaned from a spreadsheet.

It is a great deal more constructive to use charts in your trading journal. After all, what are you looking at when you take a trade in the first place? Here is how I make my journal entry: After a trade, usually a few hours later, although sometimes at the end of the day, I will print out the charts I was looking at that helped me determine to take a trade. On the top of the chart in the corner I write what the pattern I traded was. I also write the symbol, sector, entry time, price, exit time, price and gain or loss there.

Then on one side of the chart I write my pros and on the other I write my cons. On the chart itself I mark all relevant info: support and resistance, trend lines, volume, etc. so that when I look back at my chart, I automatically focus in on the main points that helped me decide to take the trade. Then, under my chart on one side I write the things that I did correctly and on the other I write down things I could have improved upon. I then organize my journal according to patterns. There is of course some overlap, but news trades on gaps I keep together, three test triangles, etc. I put those that work in the front of that section and those that stop out in the back of that section.

At the front of each section I then have a list of pros for that pattern and cons for that pattern which builds on itself as I learn. I also have a sheet that lists things I constantly do correctly on that pattern and my most common mistakes. Organization is essential. Your journal must be something you can actually learn from. If you want, you can add equity curves. These can help you narrow down times of the day or week where you trade better and even times of the year. On an equity curve I'd suggest marking significant life events as well.


On my trade page one of the things I write is how I am feeling on that day in general about trading. It helps me see what days to avoid trading. Let's face it, your emotions and how you are feeling will determine how well you do that day. Recognizing those situations ahead of time will save you money. I try not to trade on days where I will have to be in and out all the time, on days where I feel I am coming down with a cold, or actually have one, on days where I only got a few hours or sleep, etc. These are just obvious ones. Unfortunately, sometimes still do it despite knowing better... Let's face it.. if you are sick and bored... do you really want to just lay around in bed, or do you still want to follow the market and see what's going on? I hate laying around in bed myself. Besides, the market is distraction from feeling like garbage... until you lose money... and feel even worse! So, send your significant. other out to rent movies instead.... and vegge out on the couch.

I once had someone ask me that if I am following a set of rules for entering a trade, then why does it matter how I feel when I take a trade. After all, if I stick to the rules, in theory my outcome should be the same regardless of how I feel. The problem is that your ability to stay focused is greatly impaired if you are not feeling up to par. Maybe you are on cold medicine, maybe you are tired from only getting two hours of sleep the night before, etc. Whether you admit it or not, this will affect how you trade, even if you are following your rules. If there was no difference in how you felt as compared to how you perform, then everyone would be able to more easily match results made to their simulation trading. You can plan into simulated results to allow for slippage and not count trades you don't think you could have gotten filled on. There will still be the emotional difference though.

A lot of times with being sick for instance, it can cut down to reaction time. You don't get your orders off as quickly and are slower on execution. Hence, it is easier to miss the better, quicker trades when you might not have otherwise. Instead you are more prone to taking the slower stuff and having them fail more often. Or, if you do get something quick, your exit timing can be off. It really just comes down to being on the ball. Not having a coughing fit or something when you are trying to exit a trade and hit a buy button instead of a sell button is always a good thing!

I made a mistake just like this a few months ago. I had been out sick and was so bored by Friday that I came in. I entered a nice trade. It went my way. I was so slow though from feeling under the weather that I messed up on my exit order and missed my target. I only got out of half of the position. The rest turned into a loss because it was a scalp trade, so I bailed. I used a market order, which is something I almost never do, but forgot to change the order to half size. So, guess what? I ended up short a half lot.

In the end I was very lucky. I made just enough to cover commissions. It never would have happened though had I not been trading when I was sick, because my reaction time was slow and my ability to think quickly and make adjustments was greatly impaired. Sometimes, even when you learn a lesson... you need a reminder!

A journal doesn't have to take a lot of time, even with the amount of data I've asked you to keep track of. A chart is easy to print out and you can mark it up pretty quickly. Not having enough time is one of the biggest excuses I have heard for not keeping a trading journal. If you print out your charts an hour or so after each trade for a daytrade though, you can work on your journal during slow times throughout the day and it doesn't take away from your day at all, since you'd likely be sitting here watching the market anyway.

I know very few successful traders that do not have a journal of some sort unless it took them many years to become successful. At that point they pretty much have a mental journal from seeing things over and over so often. It takes a lot longer that way, however, to actually make the connections and be able to explain them. We all have that to some extent, "I just knew that was going to work but I didn't take it!" The reason is typically just not knowing why it would work... The subconscious had processed it but the conscious had not.

When I am printing out the charts for my journal I print out the time frames that were relevant to making my entry and exit decisions. I use Paint Shop Pro to create the image, so on my charting platform I just have my significant charts grouped together. I can then hit the PrtScn button to copy the image and crop it down to the charts that are important. This allows me to put my 1 min, 5 min, 30 min and daily (or whichever ones I feel are most important) all on one page. It saves me both time and paper that way.

One review method that works really well following a trade is to cover up the outcome and walk through it bar by bar as it develops to help cement that progression into my mind. It allows me to focus more clearly on the key points as a pattern develops that I might not have seen initially. That way I can recognize it more quickly the next time you see the same action forming.