Trading Journal

I think of a trading journal as the place where I capture all the details of a particular trade. It is kind of a history of the trade and allows me to go back periodically and review them to see if there is anything I can learn from that particular trade. I find this more effective on the trades that have been unsuccessful. I call a trade unsuccessful when I feel I lost more than I should have or I feel that I may have missed exiting early.

Paper or electronic... that is the question. Each person will have their own preferences as to the form and format of the journal. I personally prefer paper I can look at, make notes on and review later. Others will prefer to do everything electronically. Either can work as long as they journal is used consistently.

There are four key components of my trading journal.

  1. A snapshot of the chart at the time of entry
  2. Some particulars on the trade
  3. My planned exits
  4. Notes

Chart

I like to include a copy of the chart based on my entry. This is helpful to me for several reasons. When I enter a trade, I am basing the entry on my assumptions using the 'hard right edge' of the chart. When the trade is over, it is educational to review the chart to see if my expectations were correct. Over time, I can review my charts and begin to see patterns where some of the setups I may have chosen are better than others. From that I can learn to improve my selections and entry timing.

How to include a chart? There are several ways I've seen it done. Some people simply print out a chart, cut it out and paste it to the trading journal if it is a physical paper journal. For electronic trade journals, simply copying and pasting the image can work. I actually prefer paper, but I've found a way to print my journal as a blank set of entries I can fill out by hand and then I leave room to re-print the chart at the top.

Trade details

I always like to capture the details of the trade. Part of the reason I do this is to verify that I've followed my rules. Entering this information forces me to make sure I'm following my entry criteria. Also, when I review the trade later, it helps me to have all the information right in front of me. I like to capture not only some of my entry criteria that I verified, but also things like what position(s) I took, what credit/debit I got, what my expected ROI is.

Planned Exits

I capture what my planned exits are based on the rules I've defined, but specific to this particular trade. I always try to have an exit on success and an exit when the trade goes bad. Whereas my rules may define exits based on percentages, the trade journal would capture absolute dollar amounts. This is helpful not only as the trade is progressing, but also in review to make sure I am following my rules. Many of the trades I've had that I consider unsuccessful were unsuccessful because I failed to follow one of my exit rules.

Notes

The notes section is much more free form. I try to capture the date I make an entry and also some of the details of decisions I made. My first entry is usually when I enter the trade and captures my thinking and expectations for the trade.

Using the trading journal


Before the trade

The hardest part of this whole process is to have the discipline to fill this sheet out before I place the trade - or at least at the same time I place the trade. At that point in time, I have the ability to capture all my assumptions and expectations. If I wait (as I've sometimes done), it's difficult to recapture what I was thinking at the time and I'm left to guess.

During the trade

There is tremendous value in making notes during the trade. Perhaps I'm considering exiting but decide to stay in the trade. I need to capture that so that I can later go back and determine if I was wise to do so. If on a weekly basis I review my trades, that is a good time to make some sort of note as to why I stay in the trade or why I choose to exit.

After the trade

The real value of the trading journal comes in the review process. I have found it valuable to review my trades at the end of each option cycle. I'll take all the trades I've made for the option cycle with each trade journal and review the notes I've made, assumptions and the actions I took - sort of like a post-game analysis. From the review process, I've actually come up with new rules to add to my trading plan that help ensure I have more successful trades.



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