Trading Journaling 101

Stock trade journaling is a powerful tool to help you improve your trading performance. It will enable you to:

  • Find patterns in your trading that bring out winning and losing strategies;
  • Track the emotions that are affecting the way you (and all traders) make decisions;
  • Become a consistent and disciplined trader.

Here’s a step-by-step approach to how to use your trading journal for analysis of your performance.

  1. You make a trade: With high-quality journaling software, you can export from your trading platform all the basic facts about the trade, including number of shares, stock price, time of execution, entry trigger, eventual exit trigger etc.  These are fundamental to your analysis.
  2. You should also include detailed data on market conditions, emphasizing the aspects that influenced your decision to make a trade. Was the market trending higher or lower? How intensive was buying and selling volume? Was activity in the sector in which you made the trade heavy? What about cross-market trends? Have you also taken into account recent economic activity that could affect your trading? All of this should be noted in your journal.
  3. The situation of the company whose stock you are buying is clearly a critical factor to be considered. You should first note how much outstanding stock the company has, and when stock has been issued in the past. Then indicate the company’s recent results, going back at least a year, along with any news that has come out of the company that might affect its performance, like a management change or a new product release. Any changes in the sector in which the company operates, as well as any potential economic events that might affect its performance should also be noted. For example, a real estate stock might well be affected by a change in mortgage rates. If a trade goes bad because of an external event of that type, you will want to note it in your performance review.
  4. If you are a technical trader, you will also want to note the candlestick setup on the trade, or if you are following a long-term strategy like a Fibonacci retracement. You may also wish to indicate if a moving average has been crossed, any stochastic indications, etc.
  5. You will wish to note the trade management rules you are applying, including a list of all potential outcomes for the trade. You can indicate your expectations, and where you expected to be able to close the trade.
  6.  Now enter as much detail about your emotions regarding the trade as you possibly can. Were you enthusiastic about the trade, or cautious? Anger over previous losses may have affected your decision to trade this stock, or possibly a feeling that the stock will move sharply higher or lower has gripped you.

Working with a high-quality journaling application, you can easily enter all these criteria, and then work with them in the comprehensive reports that the software generates. You can then perceive flaws in your trading strategy, and learn to do better.