5 Reasons you should have a Trade Journal
How the act of recording & analyzing can improve your profitability
So you call yourself a trader but don't maintain a journal? Are you really a good one?
You would be surprised to know that the simple act of recording what you have traded has many advantages and can be a catalyst in making you a supremely profitable trader. If you haven't recognized its importance yet, let me tell you 5 reasons you should have a trade journal:
FIRST STEP: RECORDING
The first step in improving as a trader, or in anything actually, is to be aware of what is currently going on. Awareness and just addressing the facts can enhance your perspective like anything. The first thing to do is write down on paper or record your trades on an Excel sheet. Make sure you are entering the buying price, selling price, the amount invested, profit/loss made and the transaction costs that you gave up.
It’s easy to dread and give up while trying to use these tools to make entries on a daily basis and keep record of everything on time, let alone updating it. But we have a way around it. In Tribe, you can maintain your journal entries in such a way that not only the data entry becomes easy, but also you’ll be able to track performance and gauge how well your strategies are working. You can create a new tip within 30 seconds, and not only does it automatically get stored, but you can share it across different social media channels seamlessly. Track your previous trades, its performance and share tips in hassle free steps. Here is a demo of how you can do this:
Doing so consistently every trading day will make you acknowledge the trades you've taken and will show the results of your analysis. In this step, it is not important how you are performing (we'll get to that later), but you are just getting to know yourself as a trader.
Try to recall an incident when you reacted abruptly in a situation, but only realized it later while you spent time thinking and reflecting over it. Look at trade-journaling as a time set aside for reflection of your trading activities. Many times, you will notice you're doing things the wrong way, just by reviewing what you have done.
Once you get into the habit of recording and reflecting on your daily trades regularly, the next step is to find patterns in them. Just writing down your trades won't magically improve your profitability, you'll have to recognize the wrongs and take on the initiative to correct them.
The logical step in any kind of analysis procedure is to - record, identify, analyze, change and evaluate. So pretty intuitively, the next step is to review your records to find discrepancies and understand what is working, and what needs to be let go of. This can be achieved pretty well with Tribe, where your previous trades (along with buy/sell prices and profits/losses are automatically recorded). While going through records, one thing that most first-timers find is that they take too many trades than needed. One more common mistake is that new traders often make trading decisions in the spur of the moment, just because it is exciting. It may not be backed by sound strategies. Such things can only be taken note of after the trading session, when you are in a calm frame of mind and when you look at things from an unbiased way.
It may sound simple, but it isn't. Oftentimes, one can overlook mistakes if one has made profits. Though profit-making is the goal of every trader, the story is about how the profit is made, ie. the strategy used. Identifying one strategy that worked relative to other strategies is a good way to analyze your trades better and derive accurate conclusions.
FIND THE WHY
Okay. Now you know what you're doing wrong. But just knowing won't solve the problem. You would be sane enough to stop repeating those mistakes, but that shouldn't stop you from trading altogether. This is just like a problem-solving step. To solve a problem, you have to understand how it happened, and more importantly, why it happened in the first place.
You need to reach the depths of a problem to understand it completely. So focus on why you took certain actions and why you did things the way you did them. Most newbies blame copying a friend's strategy, being in the heat of the moment, and false signals as their reasons to make trades, which they realize to be stupid decisions later.
If you're able to solve the why you would already be one notch above the regular traders. The reason can be anything, and different for different people. One trader may find that because he is unaware of the basics of support and resistance lines, he is making wrong calls; another may realize that because he hasn't checked the volume meter, he/she is not able to liquefy when wanted. Another example is that you realize that all the trades you're taking in the first hour of the market opening are resulting in losses. After identifying this, if you reflect well, you'll realize that this is mostly because you're in a hurry to take trades and don't want to miss out on any of the day's action. However, you will later understand that trading daily is not the answer to being a profitable trader.
The next step pretty intuitively is to solve the problem you have rightly identified. There are many ways to do this, depending on the roadblocks you are facing.
The best way would be to get in touch with a mentor, teacher, or experienced trader because they probably might have gone through what you are currently experiencing. There are many experts from whom you can learn at Tribe. Taking a class to understand the basics would be a good idea. There are a lot of forums where experienced investors help out new traders in their journey and being part of such a community does pay off.
Another way of going about it is to try different approaches and test out new strategies or enhancements on the old ones. Don't forget to record these new ideas, strategies, and concepts along with their results. Here is why.
The concept of evaluation is very similar to the first step of recording and its benefits are quite the same. The only difference is that this time, you are one step ahead.
Look at this as the test result you get in school. If you wrote a solution for the problem during the test day, how would you understand whether you are right or wrong? You'll only know that on the result day. Just like that, you need to evaluate whether your new strategies have worked out the way you wanted them to.
2 things can happen - either they do work out, or they don't. If they prove to be good, congratulations! You have found a solution. If they don't, then it is advised to go back to the second step of identifying the exact patterns and digging deep to know why an idea didn't work.
Believe it or not, journaling is a golden habit that not only helps you stay disciplined but assists you in identifying fraudulent trading habits and encourages you to find solutions that help you get to the goal of profitability.