Without using a trading log to log your trading activity, you will have no clue if your trading strategy has a chance of working over the long term.
How could you?
You need data to back up the probability of your trading strategy and a trading log is the best place to start.
Why Are You Not Using A Trading Log?
I think a trading log is an under-utilized yet valuable tools available to any trader and I must ask “why is it that traders have a hard time using one?”
Part of the reason why so many people overlook it, is that they don’t have or can’t stick to a proper trade plan. If this is your problem then you need to be journaling.
If you are able to execute your plan properly within reasonable discretionary limits, then to get to grips with it and be able to build upon it, you must take the time to assess, plan and log your trades appropriately.
“But my trading platform has a trade log”.
Maybe it does. Perhaps it even has the statistics you need to assess your plan.
But what if it doesn’t?
- What if it doesn’t know that you took a setup on an attempted gap fill last Tuesday?
- What if it can’t account for the fact that you think perhaps your strategy works really well after the release of NFPs?
You might have thousands of entries in your trading log, but unless you plan what you want to look at, the log will be limited in value (although still better than nothing). If you take the time to address what you hope to gain from your trade log and how you record your trades, you will reap the rewards and agree that your trading plan is really your best friend.
Well perhaps not your absolute best friend. Your risk plan is probably that and your strategy and psychological approach can be thrown into the mix here too.
Potential of a Trade Log
If you struggle to stick to your plan then it’s important to make use of your trade journal (and possibly reassess your plan), understanding the importance of a trade log can give you the extra commitment and impetus needed to stick to your plan in itself. This is before you’ve even started looking at the stats.
You’ve got something to aim for and so your consistency of execution notches up a level.
Because it has to.
If you don’t sort out your execution, what good are the stats from your trade log going to be to you (other than in proving how you don’t follow your plan)? But don’t think that you’ll automatically become immune to making mistakes all of a sudden, just because you start following your plan properly and logging your trades.
A trade log also can highlight the number of mistakes you are making and therefore keep you on your toes. If you’re aware of how likely you are to make a trading mistake (without putting all your focus on it), you’ll be better placed to rein yourself in when you need to.
Improve Your Trading Plan With Hard Data
Here’s where the trade log really shines; it tells you where your plan can be improved upon. Of course it doesn’t actually tell you anything. It’s actually just historical stats and this distinction is really important to make.
The interpretation of those stats when put into the context of how a market trades, the possible implication on occurrences of similar instances of an event in the future and the way you trade your trade plan, is what will potentially be invaluable to you.
You could of course end up making inappropriate changes to an otherwise solid trade plan for example, if your interpretation is not good. So there is a degree of skill in using the information you gather, but like with anything, you should be testing any changes you make anyway.
By seeing how the trade plan works, you are not only able to improve its level of performance, but also gain a deeper understanding of how the market you’re looking at trades. This will potentially give you an insight into specific variables to focus your attention on, in order to tune your plan and whether other types of strategy could work on the market.
Many Variables Can Be Measured
As I’ve already highlighted, there are so many different possible variables. In fact you could argue that the number of variables we choose to look at is limitless.
- How much volume has traded at the open?
- What was the size of the range for the previous session?
- Does a specific economic release change the odds of success of your strategy on that day?
- Is there a specific time window or day where your plan works better or worse?
- Do you perform better after a long workout before the session starts?
- Are you able to generate more consistent results when you only have to concentrate for a short amount of time?
- Does the strategy perform better when the market you’re trading is trending or balancing?
Do you see my point?
If you are going to be able to analyze any aspect of your trading, you are going to need to plan ahead for it. There are some things your platform may give you anyway, but anything which is non-standard or subjective must be logged at the time so that enough data can be gathered to properly study it.
So many times I’ve thought of something only to realize that “nope, you can’t study that idea easily”. But when this happens, I add it to my trade log so I’ll be able to figure it out at some point in the future.
Sometimes the information is useful and many times it’s not. But until you decide to track a variable and then subsequently test it, how are you to know?
Basic Trading Journal Information
You don’t need to have a fully in depth journal when you are just starting. Even a basic listing of your trades (real and simulated for back testing purposes) can help you stay on point.
- Time Trade Taken
- Time Trade Closed
- Entry and Exit Price
- Stop Loss Price
- Position Size
- Profit and Loss
That information can be taken from your broker software but you will have a better chance of reviewing it if you make a list for yourself.
But what if you want something more in-depth?
Online Trading Journals
There are some sites that offer trading journals for a cost. Here are three that you may want to investigate although I have no experience with any of them
One very popular free trade journal is MyFX Book for Forex traders.
Netpicks knows how important statistics are for traders and we put together something we called “The Ultimate Trade Analyzer“ that you can have as our gift to you.
Use Your Log Every Trading Day
Just like a trading plan, your trading journal has to become one of the rules you follow. End every trading day by logging all the information on the spreadsheet and if you have our software, let it calculate the important information.
You may find that by logging all your trades, you can improve your trading plan to reap even bigger profits or lower risks. Either way, you will find a trading log to be invaluable.
Don’t forget your free trading log: The Ultimate Trade Analyzer