Monday, 22 March 2010

Trading Diary

Do You Keep A Trading Diary?

One of the first things my trading Mentor taught me was “winners keep score.” Since early in my trading career, I have kept a diary of the daily trades I initiate. There was a time when I thought that diaries were for bookworm-ish men and teenage girls. However, one of the most effective learning tools in my trading arsenal is my extensive trading diary.

Most futures brokerages have a method that will allow you to download your trades every day. Usually, this download comes in a spreadsheet format and is compatible with Excel. Of course, you'll need to check with your broker to determine the methodology your particular brokerage uses. Along with a daily accounting of the trades I'd make I also include a copy of the chart I traded on that particular day. Further, I may make notes about the trading activity that occurred that day. I often note the volume, volatility and in any anomalies that may occur throughout the course of the day.

Why go to all this trouble?

In my trading, I have found my trading diary to be one of the most useful tools for me to improve my trading technique. I generally wait about three months, or until I've forgotten that individual day, to revisit my trades and evaluate both good and poor trading technique. I am often amazed, and sometimes embarrassed, at the trades I initiate. However, reviewing your trading diary allows you to dissect and analyze the trades you made and hopefully learn from your mistakes and reinforce the trades that were executed properly.

The point of keeping a trading diary is to remind me that I've must remain a student of trading at all times. Regardless of whether I've traded 25 years, or 25 months, or 25 minutes it is important to keep the student mentality. In my opinion, this is where many traders fall down. Learning to trade is an ongoing process, and the market has many moods and unique price action. Sometimes it can be months or years before similar situations arise, and it's handy and useful to note these anomalies so that you might be better prepared the next time they occur.

Even more important is to review the charts from past trading days. By looking at the trades and the chart together it is like looking at a chart from yesterday and analyzing the moves you made both, good and bad. This repetitive diary review keeps me in the learning mode and allows me to continue my own personal growth as a futures trader.

As I said, I use an Excel spreadsheet and make notes in the individual daily cells for my trading diary. On the other hand, there are an infinite number of ways to keep the trading diary. You might use Word, or Open Office, or any program that will allow you to keep a record of your activity. It doesn't need to be fancy, it only needs to make sense to you. There are also a number of commercial trading diaries on the market which are very detailed and inclusive. For me though, Excel works just fine. Your choice of recording your trading activity is strictly a personal one, but make sure you keep a diary of some form.

How do I analyze my diary? I would like to think that I use specific criterion for selecting my trades. When I review my trading diary, I can cross check my trade entries to see if my trade selection met the criteria I have established. One of the traders worst enemies is trading on a motion or intuition. So I like to analyze my losing trades and determine which part of my criteria, if any, I violated. As you can see, the psychological aspect of trading is an important component to recheck. I try to identify those trades where emotion was an important component of my investment decision and note the specific chart formation that led me to believe I was entering a profitable trade, when I was not. I have found the only way that I can consistently analyze my past trading activities is through my trading diary. And it is through my past mistakes that I can avoid making similar unwise decisions.

In summary, I encourage you to keep the trading diary and record as much information about your daily trading as possible. It's also important to get into the habit of entering information in your diary every day. Keeping a trading diary helps you, as a trader, state firmly entrenched in the learning mode, as it relates to trading. Reviewing your past trades and the chart formations that cause you to initiate those trades is a superior method to improve your trading technique and trading self-discipline.

Get your FREE forex trading diary template here: http://yourtradingdiary.blogspot.com/2010/02/forex-trading-diary.html


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