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. He 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.
How to Create an Efficient Stock Trading Diary
Okay, so you get the point that a trading journal can be effective. But how can you boost your potential for optimal success with it? Here are some key tips:
Structure Your Trading Routine
Trading rewards routine. You’ll probably get the most out of your trading journal if you have a well-structured trading routine.
Be consistent with what you do as a trader. For example, waking up early is a great routine to adopt. This can allow you to get errands and tasks out of the way and gives you time to do some research so that you’re ready to rock and roll when the market opens.
That’s just an example, though. Since many traders are starting out while also attending to a full-time job or other responsibilities, you need to figure out what type of schedule works for you. Choose a routine that works with your schedule and that you can stick with.
Making a routine, and making a trading journal part of your routine, can help you make the most of your trading career. Be sure to use your trading journal even on days you don’t trade, and make notes of why you chose not to take a position! This can be very informative, too.
Analysis of the Market
The more trades you track, the more data you amass, the more you’ll learn, and the quicker you’ll learn it.
By recording your trades, market observations, and overall thoughts, you’re not just learning from your own mistakes and successes — you’re also gaining an inherent sense of how to perform market analysis.
For example: You may notice consistent losses or gains in a particular industry or sector. This can clue you in on trends in the market that you otherwise might not have noticed.
When you see what’s working and what’s not, it can allow you to be more targeted in your market analysis.
Analyze and Record Your Own Setups
A trading journal can assist you in refining your own setups. Here’s how it works:
Find the Setups to Trigger Your Entry
What’s the ideal setup to trigger your entry into a trade? Your trading journal can help you figure it out.
You should always go into every trade with a trading plan. But if, for example, you begin to notice that you’re entering trades too soon or too late based on your trading journal, you can likely begin to gain the bravery to try out different timing.
Armed with your trading journal, you can help determine the setups most worthy of triggering your entries.
By recording your own setups, you can also gain insight about the market at large. You can begin to see market trends and how they might affect your setups.
As a trader, learning to understand the market is vital because it helps keep you nimble. The market is ever-changing; the same setups that work in one sort of market condition might fall flat upon an economic shift. Understanding the market can help you navigate and acclimate.
Determine Appropriate Lot Size
According to Economic Times, “In the stock market, lot size refers to the number of shares you buy in one transaction … The theory of lot size allows financial markets to regulate price quotes. It basically refers to the size of the trade that you make in the financial market.”
With price regulation in place, you as an investor can always be aware of the number of units being purchased in a contract, and can determine the price paid per unit.
Be sure to keep track of what sort of lot sizes you’re dealing with in trades, as this can help you decide what types of approaches to take in the future.
Many traders aspire to be one type of a trader or another. However, one of the biggest things I’ve learned as a teacher is that you’ll probably naturally gravitate toward specific styles of trading, and you shouldn’t force it.
Rather than chasing what’s trendy or what you see other traders doing, focus on the style of trading that leads you to profits, whether that’s taking long or short positions.
Your trading journal can help you determine what types of trades are best suited to you by helping you figure out what has already earned you money. Don’t be loyal to a position — be loyal to profits.
Stop and Profit Placement
In many ways, trading is a probability game. However, since there are a lot of moving pieces at work, it’s incredibly hard to get it right all of the time. A trading journal can help you implement some tools to maximize your stop and profit placement.
Let’s examine some specifics …
Cut Losses Quickly
Go ahead and ask my students and they’ll tell you: my number-one rule is cut losses quickly.
Personally, I prefer to trade scared. I will pull out of a position sooner rather than later, even if it means fewer profits. I’d rather be safe than sorry.
A trading journal can help you out with determining when you should cut losses. If you notice that you’re constantly losing, journaling can help you know how to cut losses quicker. Or, if you notice that you’re constantly checking out too soon, you can perhaps begin to gain the bravery to stay in the game a little longer.
A stop loss order is a type of order you can place with your broker wherein you’ll sell the security when it reaches a particular price.
While stop losses are perhaps most strongly associated with long positions, they can also be used with short positions. In that case, the security would be purchased rather than sold if it reaches a certain price.
In this post, I go into the basics of the stop loss and how you can use it to protect yourself.
Your trading journal can help you begin to zero in on appropriate positions and how to approach ideal stop losses. It can help you effectively implement mental stops (discussed in this post), as well.
Record the Profit or Loss from Each Trade
Every time you make a trade, make a detailed entry in your trading journal about the specifics, including the profit or loss from each trade.
Make notes of your entry and exiting positions, how much you risked, and the resulting profits or losses. As the information collects over time, this can help you determine what your sweetest setups are so that you can begin to focus on attempting to replicate the profits you’ve gained in the past and avoid the losses.
What Else Do You Need to Record In Your Trading Journal?
As much as you think you’ll remember the details of your trading setup, you probably won’t.
Record these things to make the most of every entry …
Obviously, you should record the date of your trade. Not only can this help you track what you were doing when, but you can go back and look at the stock’s chart on that date if needed in the future. Once again, never assume you’ll remember!
Don’t just mark the date, but time-stamp your entry, too. In the world of day trading, minutes matter. It can make a big difference if you traded in the morning hours versus mid or late day. The same setup that spells success in the morning could be a massive mid-day flop.
This is where your trading journal begins to work in tandem with your trading plan. When you make a trading plan, you plot key tactics like your entry point, exit point, and what you hope to gain from the trade. This can help you stick to the plan and, ideally, helps keep emotion out of things.
In your trading journal, be sure to make note of the price at which you enter a trade. This is invaluable information that can help you in the future.
Don’t just mark down the price at which you entered the trade. Take note of the price out, too. Your exit is just as important as your entrance. Tallying this data can help you analyze if you’re staying in your positions for the right amount of time.
Be sure to note any difficulties in getting out of your positions, too, as it might affect how much you risk next time.
The Amount You’re Risking
Before you make a trade, you should always determine the amount of money that you’re going to invest. Keep note that on one level this should be an amount you are comfortable losing.
How much should you risk on a trade? My opinion is that you should always take a more cautious position, and never risk more than you could comfortably lose.
You don’t want to add the stress of potentially blowing up your account to a trade because this might make you act or react in irrational, emotionally driven ways.
Example of a Trading Journal Spreadsheet
Here’s a sample of what a trading journal spreadsheet might look like from a prior post on this blog:
While your journal doesn’t necessarily have to follow this exact format, this is an example of some information that you might want to log and how you could organize it. By keeping track, you can easily refer to it at a later date for accurate information.
Trading is something that you learn little by little, and you continue to learn as you go on in your career. No matter how long you’ve been trading, there’s always something to learn by logging this information.
Top Trading Journal Software
What’s the top trading journal software? That depends on your platform and personal style. But here are some thoughts …
The StocksToTrade platform has a handy trading journal feature that you can use to monitor stocks and keep track of your trades.
Additionally, on the StocksToTrade site, you’ll see a great post on resources for apps that can help you keep track of a trading journal. It has notes about which ones might suit different recording styles.
Tips for a Successful Trading Journal
Want more tips to help you maximize your trading journal’s success potential? Good, because I have a few more for you …
Identify Patterns That Lead to Your Losses
Making mistakes is inevitable as a trader. Even I don’t win all of the time. My success rate is about 70%**, as you can easily see on Profit.ly because I’m a massive believer in full transparency.
I never hope for a 100 percent win rate. I know that’s pretty much unattainable because while I can control my research, I can’t control what the market will do.
You can’t control how much you win, but you can help control how much you lose by cutting losses quickly.
You can also learn from your losses. Once you’ve kept a trading journal for a while, you can begin to look at your losses and evaluate what’s happening.
Chances are, you’ll see patterns emerge. It might be the time of day you’re trading, the sector in which you’re trading, or it might be a flaw in your setup. If you notice consistencies in your losing trades, this should act as a sign that it’s time to change something.
Identify Patterns That Lead to Your Winners
Don’t just focus on the things you’re doing wrong — look at what’s going right, too.
You can — and should — also chart patterns in your own trades to help you analyze what’s working and what’s making you the most money.
I call myself a glorified history teacher, because much of my success trading stocks is based on being able to identify patterns. But stock charts aren’t the only revealing resource.
Once you begin to amass data in your trading journal, you can begin to evaluate what’s playing into your success. For example: Are you having great success with shorting supernovas? This is a strong sign that this is the type of setup you should begin to zero in on and refine.
Master Your Skills With Professional Assistance
Combining a trading journal with trading classes is a fusion that can improve your success.
The data is only as good as what you do with it. When you take the time to learn the mechanics of the market, you can begin to learn key setups, which can help you have the basis for trades that you can log in your trading journal.
Nice flow, right?
Obviously, the more prepared you are to execute trades, the more successful your results can potentially be. You can further refine based on what you log in your trading journal. It can truly help power you from a newbie to an accomplished trader.
My Trading Challenge was created as a resource for new traders. I wanted to offer the type of trading education I never had when I was starting out. It’s not hype. It doesn’t offer promises of making millions in weeks or even months. It’s not even me telling you what to do.
Myis uniquely designed so that you can learn the basics of the market, and more importantly, how to think for yourself as a trader.
Ultimately, it’s not about learning rote basics — it’s about gaining a deeper understanding so that you can learn how to be flexible and navigate the market yourself.
The Bottom Line
A trading journal isn’t simply a means of tracking your trades. On a larger scale, it’s an easy way to monitor the progress you’re making toward your goals, and can help serve as your guide as you develop a trading style.
Trading journals help test the success of trading strategies over time, and can evaluate risk versus reward on a longer term.
Ultimately, a trading journal is an important investment in your continuous education in self-discovery as an evolving trader. If you aren’t journaling, get started.
Do you keep a trading journal?