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Journaling can help traders of all stripes and sizes – anyone who regularly invests in equities can only benefit from the comprehensive analysis of trading habits and patterns that journaling enables.
But how do different kinds of traders use stock journaling?
Value traders. Value traders base their trades on what they consider a company is worth, and whether the stock price for that value is an accurate representation. Also called fundamentals traders, Warren Buffett is the most famous of this type. When, for example, the stock price of a company is too low to represent the real value of the company, it becomes a likely buy for this kind of trader, who must still take careful account of market conditions.
Journaling offers a valuable tool to this kind of trader, because it shows them if they have in fact done solid research. Was the company in fact undervalued? If not, the investor can see what factor was neglected in the analysis. The investor can also see in the journal if the understanding of overall market sentiment was correct, and, if not, when the market is more likely to support a rise in this kind of stock? Since value traders tend to hold stocks for a long time, it’s critical that they get the research right, and journaling gives them the support they need.
Growth Traders. A different type of stocks trader is one who bases his trades on the evaluation of a company’s future results and financial success. Growth investors are not especially concerned with what a company is worth now, but rather look at what they will be worth several years down the line, using techniques like discounted cash flow to estimate future valuations. Peter Lynch is among the famous of this type of trader, who obviously tend to look to young companies with potential.
Again, journaling has a great deal to offer a growth trader, enabling tracking of a company along the growth path. Journaling can help determine if the initial research was on track, and how the evolution of the company’s stock price relates to its results. By comparing trades, the growth trader can also see which sectors are performing best and focus his stock picks on them.
Technical Traders. Traders who base their decisions on stock movements – where do stock prices hit resistance as they go up, where do they level off at the support floor when they go down, what patterns of up-and-down movement do they show? John Bollinger, the inventor of Bollinger bands (a way to measure price peaks and troughs) is a famous trader of this type.
Journaling offers rich opportunities for technical traders, because the technical analysis employed can be reviewed and retested easily. With the data on market conditions, a technical trader can see the type of analysis employed, and just how well it worked. The technical trader can also compare different types of strategies and see which ones performed well under what circumstances.
Journaling clearly offers a vast amount of resources to all kinds of traders. Journaling software can make it easy to do.
