- How are you determining what are your best and most profitable setups?
- Do you know the average profitability and probability of profitability of each of your setups?
- Do you know your trade setups compare by the day of the week? Or better yet by the time of day?
- How do you know when it’s time to add size to your trades?
- How do you know if a setup is losing it’s edge? And how do you distinguish whether it’s because of the market conditions or because of your personal execution?
I’m hoping you didn’t answer “gut” to too many of the questions above.
Of all the things that traders do, it is without a doubt one of the most neglected areas of the profession.
All of us have probably heard that we need to treat trading like a business. And even though intellectually we’ve all heard about how important it is to keep a journal, many of us as traders, myself included, struggle to diligently (or neglect to) keep a journal.
If you are one of those individuals who isn’t journaling at all let me give you 3 reasons on why you should.
3 Reasons You Need to Journal
1. Monitor the performance of setups
Winning setups can lose their effectiveness over time as market participants adjust to a trend, pattern, or inefficiency that your edge may be based off of.
Tracking and monitoring the expectancy and profitability of your individual setups is key to understanding whether or not your setups are losing their edge.
Likewise the expectancy and profitably of setups can change based on market conditions. Understanding the equity curve of your setups will give you the confidence to either add size or reduce size.
2. Differentiate your performance from the setup
Unless you trade mechanically or perhaps have a systems based approach, each and every trade will have an element of human execution.
As a discretionary trader it’s critically important to understand the delta that exists between your trading signal’s edge and the edge that exists from your personal execution of the trade.
I personally grade my trade entries and exits as they are personally affected by my execution. I like to focus on how they’re trending over time to see if there are areas upon which I can improve.
Who are your stakeholders?
“Stakeholders? But I got into trading to be my own boss!”
Everyone has stakeholders. It could be someone who your are trading the money for, it could be your significant other, it could be family, siblings, or friends. And even if you’re a young bachelor/bachelorette then you are that main stakeholder.
Whoever it is, stakeholders keep you accountable.
Schedule a recurring time (I recommend starting with once/month then moving towards quarterly) to review your performance with them.
Keeping a trading journal will allow you to consistently report your key metrics and personally it helps me keep honest with my trading.
Now for the rest of you who are already journaling and keeping or trying to keep meticulous records let me share with you some of the metrics, analytics, and processes that I have in place. What’s currently working for me and some thoughts about how it could be improved.
Here are the 3 tools I currently use in my journaling and review process.
1. Google Spreadsheet
You can use any spreadsheet but I find Google Spreadsheet the most convenient as I can pull it up on any device anywhere.
As you can see from the embedded Google Spreadsheet I track the following in my journal –
- Trade / #Symbol / DateEntry / TimeEntry / PriceQuantity / Entry Action / Exit Time 1 / Exit Price 1 / Exit Quantity 1 / Exit Action
- Exit Time 2 / Exit Price 2 / Exit Quantity 2 / Commission / Realized P&L / Signal / EntryGrade / ExitGrade / TradeGrade / Chart / Comments
The following fields are calculated dynamically by the sheet that I use for reporting purposes which i’ll get into later.
- Year / Month / Day / Hour / Minute / Weekday / Win / Loss / HoldTime
As a side note I trade primarily the ES intraday using a fixed stop loss so my symbol column is usually the same and the amount of risk is generally the same.
Also I do note leg into positions and will more often that not close out the entire position at target (or stop out) or leg out in to 2 steps.
I annotate all of my charts within my charting platform (Ninjatrader) and all of my chart and screen captures are pasted into Evernote.
If I have multiple screen captures, they all go into 1 Evernote note and I give the note a title with the trading day’s date and then copy the note into a notebook I have setup for just journal entries.
From there I copy the Share URL and paste that into Chart column (column U) of my Google spreadsheet.
One benefit of this is that anytime i want to review my trades i can simply click on the URL in the spreadsheet and up will pop up the associated screen captures.
3. SAP Lumira
I use SAP Lumira do analyze and visualize my trading data. You could use any reporting tool (like Tableau, Excel, Crystal Reports etc.) but I opted for Lumira as it is free.
Lumira can use CSV files as a data source so on a regular basis i’ll export my Google spreadsheet data into CSV and load that into Lumira.
In Lumira, I’ve created a number of analytics that i like to keep my eyes on.
Here’s a snippet of the analytics that i keep.
It’s too much to go into each KPI but ultimately what my analytics allow me to answer are these critical questions each month.
** Hat tip to Timothy Morge from whom I have liberally borrowed these from.
- Did you make money for the month?
- How many trades did you actually enter this month?
- How much money, on average, did you risk each time you contemplated a trade, and what result did you expect in profits, on average, from these anticipated trades?
- How did the average risk compare with the average profit? What was your largest per contract loss?
- What was your average per contract win?
- What was your largest drawdown?
- What was your win/loss percentage?
- What was your net profits divided by your net losses?
- What was the percentage change in the value of your trading account?
- Did you have an unusually large loss relative to your average loss or average winner? If so, why? If that outlying loser was removed, how does it change your statistics?
- What caused this unusual loss, and can you change your rules to eliminate the likelihood of this large loss repeating if the same market conditions reoccur?
- Did you have an unusually large winner relative to your average loss or average winner? If so, why? If that outlying winner was removed, how does it change your statistics?
- If you had a losing month, can you isolate a type of trade that was particularly costly for you? Or a particular instrument?
- If your winning percentage was near or above 50 percent and you did not net make money, can you account for the poor win/loss size ratio? Were there any common traits you can find in the losing trades or in a group of losing trades for this month?
What could be improved
I would be lying if I said I enjoyed journaling.
Even though I think i’ve built a good process for journaling and i’ve build habits and routines for journaling I still find the journaling process tedious, laborious, and probably my least favorite part of my trading day.
Another element I dislike is having to manually enter in trade data into a spreadsheet.
Even though I export the data from my broker and copy this data into Google Spreadsheets I still find this is to be painstakingly slow for my liking although I do know other traders who value this process.
One tip that has worked for me is to try to annotate as much as possible during the trade session while the trade details are fresh in my head. Likewise, my best practice is to journal as soon as i’m done trading because if I put it off to later in the day or evening it either won’t get done or won’t be as comprehensive.
One element that I haven’t incorporated into my journaling process which I have toyed around with but haven’t gotten around to is recording my trades live and re-watching them – the equivalent of watching tape of yourself.
What gets measured gets improved.
You’ve now seen how I keep a journal and why I think maintaining a diligent journal is important.
Ultimately as a discretionary trader I recognize that I need to continuously monitor my edge.
That is the edge of my setups and the edge in my execution and personal performance. The journal is what keeps me honest and objective about my performance and where I need to improve and put in work.
If you have any questions about my journaling process or some of the tools I use I’d love to hear it. Tell me what do you use to journal? And what frustrates you or do you struggle most with journaling? See you in the comments!