Bulls on Wall Street
What is not measured cannot be improved. You will not find trading success without using a trading journal.
If you don’t document your trades, you won’t be able to learn from your mistakes and grow.
Most traders know that they should keep a journal. But they don’t know why it’s important or how to get it right. Today’s blog covers these two very important topics:
The power of a trade journal
The goal of your trading journal is to eliminate what is not working and grow what is working. Trade journals are one of the most boring parts of trading. Everyone just wants to buy and sell stocks and do banking.
But the time that you do not spend trading is actually more important than you actually spend trading. Read that again. The fun part of trading is trading. The not fun, but most important part of actually making money is journaling and education. This is the goal of a trade journal:
Regular use: Daily execution reports
Magazines only work when used on a daily basis. Biggest Mistakes Most Traders Make: You Have a Trading Journal, But You Don’t Use It Regularly!
We recommend doing the following every day:
Track every trade you make
At the end of each trading day, you should record and reflect on every trade you have made. You can use software like TraderSync (test the software here) or Tradervue to upload your trades from any broker you use. They have execution diagrams that show you all of your entries and exits. When you see your execution diagrams, you can understand what you are doing wrong.
Note and note the patterns in your trading.
Are you tracking your entries?
Are you forcing trades you don’t like?
In which setups do you keep losing?
Are You Revenge Trading?
Are you selling too early and not having patience?
Do you keep jumping in and out of trades because you’re scared and oversized?
Always focus on the bigger trends as you study your data.
Take a look at your losing trades and find out the most common mistakes, then eliminate the behavior that is causing them. Take a look at all of your successful trades and find out what they have in common. Identify what behaviors and setups your best trades had and cut out anything else that doesn’t work.
Keep track of every different setup you use
When you upload and record your trades, you need to tag the setup that you have made. This is especially important if you are a new trader who has not yet established your niche setups. Do you regularly win breakout games with wins? Do you keep losing on parabolic shorts?
Trading is a game that generalists don’t make money from. When you start out, all you need to do is have a go-to setup or two that you can rely on to consistently generate revenue from the market. Keeping track of all of the setups you make in your trading journal will tell you which setups you are doing best and worst on.
Track your loss rate and mistakes
Your loss rate and win rate are the two most important metrics used to determine whether you are a profitable trader. The risk / reward ratio in your trades is just as important as your win rate. If you have a 90% win rate but your loss rate is 1:10 (meaning your winners are 1/10 the size of your losers), you are not a profitable trader. However, if you only have a 40% win rate, but your average win / loss ratio on your trades is 3: 1, you will be profitable in the long run.
Don’t worry about just having a high win rate. Focus on developing the patience to let your winners run so that you have a good loss rate so that your win rate is not that important. This will take a lot of the emotions out of losing too.
They know that as long as you reduce your losses where you should, you will be profitable in the long run. Never focus on daily results when tracking your trades. Focusing on your weekly and monthly performance will tell you whether or not you are going in the right direction.
While daily reflection is important, zooming out and looking at the bigger trend is even more important.
There you have it. Journaling is the difference between being profitable and not. Nobody else can do the work for you. Force yourself to do this after each trading day until it becomes a habit that is ingrained in your routine. Do not hesitate to contact us if you have any questions!
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