Are you completely satisfied with your stock trading? Do you sense that there are areas where you could improve your performance?
Journaling your trades is a very constructive step to making that improvement. But you have to make sure the right information is in the trading journal, so that you can base your analysis on it.
Here’s what you need to include:
- All the basic information regarding each trade, including time, date, amount, expected gain, and profit or loss. These are just the starting points for your thought process.
- Market conditions, including overall direction, trading volume in terms of number of trades and total value, any changes of direction during the trading day.
- Indicators of sentiment: For example, you might note the VIX if you think a risk-off climate is emerging.
- Sector movements, for example if defensive stocks are strong on a given day when you trade, or if retailers are doing especially badly – whichever sector changes seem relevant.
- For the stock that you wish to trade, its low and high for the day, and perhaps for longer periods if you think the movement is relevant. If a stock has been at a historic low for a long time, you certainly want to note the fact.
- Any announcements or changes at the company you are trading in, for example, management changes, results announcements, etc. There may be less sensational news from the company, simply about a new product or new market entry that could be worth noting.
- Your expectations for the trade. Why did you make it? How did it fit into your strategy? What was the key factor that made you pull the trigger?
- What happened. Did the trade realize your expectations? Was it quick and easy, or were there changes in the market that you didn’t expect?
- Your feelings about the trade. Was it a sure thing, as far as you were concerned? Were you coldly analytical about the trade, or were you reacting emotionally, just going with your gut?
- How much risk did you take? You may have different ways of calculating the risk, whether in terms of the amount invested in the trade, or your relative certainty about the way the market would move. If the trade succeeded, did it earn enough so that you still feel it was worth the risk? If it failed, was it too risky, or were there other factors that you think determined the failure?
These points are, of course, not the only ones you should take into account when trading, and you should always list everything you feel could be relevant in your journal.
But these basics should always be present, so that you have a firm foundation on which to build your analyses.