Why Journals Aren’t Just for Your Feelings
If you’re looking for an easy-to-implement routine that can potentially revolutionize your trading, consider keeping a trading journal.
Far from a “dear diary” experience, your trading journal is like a little black book of trading success that can help you improve your setups exponentially by using your own experiences as data to analyze and help foster improvement and refinement in your trading.
Intrigued? Here, you’ll learn all about how to create and maintain an effective trading journal.
What is a Trading Journal?
Imagine for a moment that you’re the captain of a ship. But instead of a ship, you’re steering your career in the sometimes-choppy waters of the stock market. A trading journal is the equivalent of your ship’s log.
A trading journal (aka trading diary) is a means by which you keep track of your daily progress as a day trader. In it, you take notes of what you did throughout the day, details on your trades (or lack thereof), and the results of your efforts.
There’s not just one way to keep a trading journal. It can — and should — be tailored to your style and preferences. It might be kept in a physical notebook, or it might be a color-coded and extremely detailed document on your computer.
No matter the format, when it’s maintained with diligence, a trading journal can be a powerful exercise that can help make you a better trader.
Benefits of a Stock Trading Journal
There are a number of ways in which a trading journal can help you become a stronger trader.
To offer up a powerful example of the power of a trading journal, consider one of my most successful students, Tim Grittani, who built a $1,500 account to over $6 million and counting.
Tim Grittani’s largely credits his early success to maintaining a trading journal. By logging his trades, he was able to look at his progress over time. This allowed him to figure out what methods were working and helping him gain profits.
Grittani’s results aren’t necessarily typical, but they offer a great example of the benefits of a trading journal. Here are some of the other selling points …
Develop Discipline in Trading
Keeping a trading journal can help you develop discipline in trading. How so? It forces you to be honest about what you’re doing — and what you’re not.
This sense of accountability can inspire you to be more responsible with your studies and research. If you know that you’ll be logging the day’s work in your journal, it may be just the little nudge you need to do things properly.
Getting in the habit of logging your trades and daily happenings requires discipline. Cementing good habits like this can also help keep you on the straight and narrow when it comes to doing research and executing trades.
Master Your Emotions
One of my top suggestions to help people become better traders? Trade like you’re a machine. Take all emotion out of the process, and approach it scientifically.
Unfortunately, that’s way easier said than done. When you get caught in a squeeze or start losing money, taking emotion out of the process can seem impossible.
Keeping a trading journal can help. In your journal, keep track of how you feel emotionally during various stages of trades. No, this isn’t necessarily for therapeutic reasons, but to help you keep your emotions in check.
Over time, you may be able to see patterns emerge. For example: You might notice that you’re calm and collected during the research phase, but you start to feel anxiety when you execute a trade and if you decide to hold a position overnight.
Overall, monitoring when your emotions act to your advantage or detriment can help improve your trading psychology.
Improve Your Risk Management
The stock market carries an inherent level of risk. Unfortunately, you’ll never be able to change that. It’s just the nature of the market. However, there are ways in which you can help mitigate your risk.
An insane amount of study and research are key to helping you make the most educated and least risky trades possible. And a trading journal can help further your efforts.
You’ll learn things about your own risk tolerance through keeping a journal. For example: you may find that you’re consistently holding your positions for too long and losing potential profits as a result.
Or, you may find that you’re having trouble getting out of trades because you’re taking positions that are too big.
By taking note of the risks you’re taking and how they’re affecting your results, you can make adjustments accordingly.
You might need to exit trades sooner, even if it means you feel a massive sense of FOMO (fear of missing out). Or, you might begin taking smaller positions based on your results. Either way, your trading journal can help you improve risk management.
Maybe you’re a bit skeptical about a trading journal — perhaps it sounds a little silly or cheesy to you. Don’t walk away yet.
Trust me when I say this can be a vital tool, but only when it’s done right. There is a right, and effective way to keep a trading journal. If you do it right — you’ll help yourself improve as a trader.
Tomorrow I’ll go in-depth about how to keep a stock trading diary that will help you do just that.
— Tim Sykes
Editor, Penny Stock Millionaires