Trading is an opportunity to be seized for those willing to study and commit themselves. However, for those who have just started, the risks are high. Mistakes are just around the corner, with all the consequences that entails for capital protection. The central issue, however, is not the ability to avoid
mistakes, but the ability to learn from them.
Fortunately, there is an easy-to-implement tool whose purpose is precisely this: to allow traders to learn from their mistakes, recognize and analyze them, so as never to repeat them again. We are talking about the
trading journal. If used well, it can transform into a weapon to become, in a relatively short time, an efficient and competent trader.
In this brief but exhaustive guide, we discuss the trading journal, providing a clear definition and offering tips on how to use it best and avoid its abuse.
Trading Journal, a Clear Definition
The term
journal recalls the world of information, newspapers. In reality, the correct tradition is "diary." In fact, the trading journal is exactly that: a
trading diary. It is a sort of register in which the trader notes his trades, the results they have achieved, but also the path that led to their development. It is also a kind of notebook, as it can be used to report personal considerations and even reasoning about one's emotional state, in a perspective of
self-analysis.
The trading journal is an efficient tool - if used skillfully - for a whole series of reasons.
- It highlights mistakes. Keeping track of what you do and think means highlighting what went wrong. Above all, it means remembering it. It is the preparatory step to avoid making the same mistakes in the future.
- It plastically shows the evolution of trading activity. Traders who keep a diary develop a strong awareness of their own path and are able to understand if it is fulfilling their expectations or, conversely, proceeding slowly.
- It increases the sense of discipline. Keeping a diary, whether it is trading or personal/professional, is a significant commitment. Above all, it is a routine commitment (or at least it should be). Hence, its ability to increase the sense of discipline, an invaluable resource for any trader.
How to Keep a Trading Journal
It is not enough to take pen and paper (or open a Word document) and write down everything that goes through your head. It is good to follow a method, adopt a systematic and consequently effective approach. So, here are some tips for properly keeping and
managing a trading journal.
- Separate facts from opinions. It should always be clear when you are simply reporting the facts and when you are indulging in personal considerations. The advice is to distinguish these phases in time and space. You can start with a summary of the trading activity, draw a line, and then proceed with personal considerations. The former should be done in a dry and aseptic style, while the latter could be reported in a freer and more discursive style.
- Report everything. In particular, it is necessary to report the evidence gathered during the analysis phase and from which the very idea of the trade arose. It is good to report the techniques used, the sums allocated, the indicators utilized, and obviously the consequent results.
- Create a schema. That is, a model that allows you to mention data quickly, and then consult it just as quickly at a later time. This allows, first of all, to shorten the time, and secondly, to create a set of data that is easy to analyze.
- Prepare regular reports. Every so often (which may vary depending on your approach to trading), it is good to draw up a sort of summary of your trading activity, a kind of summary of what has happened.
- Dedicate a specific time of day to writing the trading journal. Writing the trading journal should become a sort of routine. The advice is to carve out a specific time of day and a limited amount of time. Most traders, or at least those who operate in daily mode, update their diary in the evening hours.
Trading Journal, the Risks to Neutralize
Managing a
trading journal is less simple than one might imagine. This can be seen from the precautions we mentioned in the previous paragraph.
Moreover, the continuous writing of the trading journal exposes one to some
risks, real drifts to be avoided.
- The first consists of over-analysis. It is true, everything must be reported, but it is still necessary to establish a certain level of detail in advance. The risk, if you operate otherwise, is to waste too much time, to get wrapped up in yourself and thus lose sight of the real goal: to trade and earn.
- Another drift consists in using the journal as a tool to confirm one's biases, for self-justification. In this perspective, the diary becomes a weapon not to fix one's behaviors, but to persevere. The advice is to practice the utmost honesty when keeping the journal, moreover the most complicated type of honesty of all: that towards oneself.
- Finally, there is the risk of transforming the diary into a source of fear. Putting your mistakes in black and white means highlighting your failures. For some, this is an anxiety-provoking dynamic, which risks compromising the mindset and worsening the emotional condition. The advice, in this case, is to keep in mind a small great truth: making mistakes is normal, it is physiological, especially at the beginning. In short, be indulgent with yourself.
