Trading Journals
Whether you’re a long-term investor or a day trader, you should always keep track of the trades you make. Aside from simply offering you a convenient record of your PnLs you can constantly refer back to, it gives you an opportunity to revisit all your old trades and find meaningful patterns. Having an organized list of key data points and a brief explanation of how a trade went, what you were thinking at the time, and any other relevant information can help you piece together commonalities among your winning and losing trades that allow you to make significant improvements to your trading strategies.
We like to think we’ll easily remember what went right or wrong with each trade and be able to incorporate those lessons over time, but our memory just isn’t that good. You could have a feeling tech trades usually don’t go your way, but do you actually know what your return is for just that sector? You might have a rough estimation of why a trade went well, but can you still picture the chart to reference it during future trades? Keeping track of all the information around your trades purely in your mind is incredibly imprecise and just doesn’t allow you to track nearly as many data points. Without keeping a record of your trades, you can’t tell me what your average win is, what your expected return per trade is, what exactly you were thinking during that trade, or a hundred other important details that could help you optimize your trading. For these reasons and many more, it’s essential you track your trades in a journal.
There are a lot of ways people like to journal and I encourage everyone to find what works best for them, but they generally fall into two main camps: written trading journals and data trading journals. Both play very different and equally important roles in improving your trading, so I’ll take a detailed walkthrough of each one and how you can start incorporating them into your trading routine, starting with the written journal.
WRITTEN JOURNAL
Most people who think of a trading journal probably imagine something along the lines of a few sentences about what the trade was and why you entered. While that is by no means a bad approach to journaling as those are very important bits of information to record, such an approach often fails to capture one of the most important factors in trading: your psychology. Psychology is a huge yet underappreciated element of trading and understanding your thought process around winning and losing trades or patterns in your thinking during those trades will be just as helpful if not more helpful than a basic recap outlining what and why you entered. This is why every written journal should include notes on your psychology in addition to a basic description. Saying you entered a trade because a couple of moving averages crossed or price entered a supply zone is certainly helpful when you review your trades, but it leaves out the emotions you were feeling, your mental state, and how all that related to your market bias. Without documenting that information, you’ll likely remain blind to many of the psychological factors affecting your trading. The setup triggering your entry may not be the problem you need to address—the problem could be your attitude or misapplication of your rules because of your emotions. Keeping a written journal to track how your feelings and state of mind affect each of your trades is crucial in identifying useful or harmful patterns of behavior data points or a basic explanation just wouldn’t reflect.
How to Structure Your Written Journal
So how do you actually go about making a written journal? I’m glad you asked. In terms of formatting, you’ll want to break your journal down into four sections: your basic description of the trade; your feelings and self-talk for the trade; what you believe the consequences of the trade were; and your assessment of how you could have done better. Though some of these might seem straightforward, let’s break them down one by one.
Basic Description
I touched on writing a basic description a few times already, but an example of this would be something like “I entered on a high of day breakout, but price broke to the downside during the FOMC meeting and I was stopped out”. The description should be a simple summary of what happened and as devoid of emotion as possible—try to be as plain and objective as you can with a generic explanation of how the trade went from start to finish. This should probably be just a sentence or two, but feel free to write as much as you’d like.
Feelings & Self-Talk
The second section, feelings and self-talk, is one of the psychological sections where you’ll let your emotions run hot. To do this, you’ll have to be very aware of your mental state during each trade so can properly take note of it in the journal. Constantly assess whether you’re excited, nervous, hesitant, tired, angry, or whatever else you might be feeling, and try to be very descriptive when you write those feelings down. Feel free to lean into any emotional language and even ask yourself rhetorical questions when applicable. If you catch yourself saying something like “How could I be so stupid?” or “What was I thinking trading during an FOMC meeting?”, write it down. The emotions and knee-jerk reactions are exactly what you want to be writing, so use this section as an opportunity to vent or even gloat. Writing down those emotions can be a great way to get them out of your system so they don’t seep their way into your trading, and they also serve as useful markers when you review your old trades. Seeing the emotional patterns that emerge from this section can be far more powerful than any patterns found in the basic description.
Consequences
The next section is an overview of the consequences of that trade. This section is somewhat meta insofar as you are assessing your feelings that resulted from the assessment of your trade. In simpler terms, you are writing how your feelings and emotions after each trade affected you later in the day or even in later trades. Our emotions around trading are far from isolated within each trade and often bleed into other areas of our life, so this is where you will document your analysis of the previous two sections. Think of yourself as a therapist or outside observer reviewing yourself and the previous sections at the end of the day to write a measured and objective account of how it all affected you. This is a useful tool in gaining some much-needed perspective on the true merit or harm of your emotions.
Assessment
The final section is a gentle description of how you could improve in the future. After your trades and writing the previous sections, you’ll hopefully be able to pull some sort of lesson or insight out of the experience that you can apply to future trades. You don’t want to be overly harsh on yourself—in fact, you want to be supportive by using this as an opportunity to coach yourself into becoming a better trader. Be honest about what you can do better, but be kind in your delivery. Don’t have unrealistic expectations and focus on what you did right just as much as what you did wrong. Understanding that mistakes are part of trading and nobody can expect everything to always go according to plan will be crucial in maintaining a healthy articulation of what changes need to be made. All you need is a couple of constructive sentences sprinkled with a little positivity to make sure every trade is a learning opportunity. Find the moral of the story for each trade and write it down.
DATA TRADING JOURNAL
Now that we’ve covered the importance of keeping a psychological journal, let’s get into the data-focused journal. While the psychological journal will keep you attuned to any thought patterns or emotional habits you exhibit, a data journal will deliver you cold hard facts about your trading. If you only trade a few times a year, it might be easy to keep a mental note of various aspects of your trades, but if you trade on even a semi-frequent basis, you’ll want a journal to keep a record of all your PnLs, what assets you traded, when you traded them, and whatever else is important to you.
What makes data-focused journals so useful is sometimes our feelings don’t align with reality and the data will make sure we are aware of that. Data points can also put things on your radar you previously dismissed as trivial or weren’t even thinking about such as a particular timeframe or market that is significantly more profitable for you. Having a series of numbers to crunch that offer you irrefutable statistics on various aspects of your trading is an easy way to make changes because there isn’t any room for subjective interpretation—the numbers simply say certain things work and certain things don’t. The only thing to keep in mind is the size of the dataset matters quite a bit. Data pulled from three trades aren’t going to give you any reliable or actionable information, but data pulled from a hundred trades will. The more trades you have to pull from, the more reliable the information will be.
As you develop a long history of trades, certain patterns will inevitably escape your memory, but numbers don’t forget, which is why it’s so important to have a data journal if you’re an active trader. Several months or even years into your trading, patterns that would have gone overlooked will slowly emerge in the data and you’ll start to notice things like trading certain assets almost always ends in a loss or one particular chart pattern is responsible for the majority of your winning trades. There are a lot of different data points like these you’ll want to keep track of that I’ll touch on later, but the date, asset, entry setup, percentage gain, and PnL are basics you should track for every trade. Doing that alone will help you identify useful patterns over time as you periodically revisit your trading history. That said, the real magic comes from expanding on the data you record and pulling additional data points like averages out of them. That may not sound all that exciting, but when you add the right data entries and line up all the relevant formulas, you’ll be blown away by what you can learn.
STATISTICS TO TRACK
As alluded to, there are countless data points you can track, but I’m going to run through a list of the ones I personally like to keep track of for each trade. In my own journal I track the date and time I enter each trade, the asset I’m trading, the entry setup, the timeframe for the trade, any chart or candle pattern if applicable, any confluences for the trade, whether it’s long or short, what my position size is, whether I entered on a market or limit order, what my level of conviction is, the date and time I exited the trade, how long the trade lasted, what my risk-to-reward ratio was, if I had a partial exit or not, how I exited the trade, whether it was a win or loss, what the VIX level was, what mistake, if any, I made, my account equity after the trade, the equity gain from the trade, the cumulative equity gain after the trade, and, of course, what my percentage and dollar PnL were. That may sound like a lot to constantly record, but spreadsheets make it all relatively easy and automatically calculate many of those data points I mentioned, so it’s hard to complain—especially when it delivers results, so trust me when I say it’s worth it. Not only do you have all that information to refer back to, but you then open the door to countless more unbelievably helpful data points that immediately calculate as soon as you fill in those entries (provided you have all the formulas in place). To hammer in just how helpful pulling data points out of all those entries can be, let me detail some of the key stats you can and should look to include in any journal you find or create.
Averages
The simplest statistics to pull from the data you enter for each trade are averages. Knowing what your average return is for every individual asset, during specific times of the day, for certain chart patterns, with various combinations of confluences, and everything else is an easy way to see exactly what works and what doesn’t. After you have a decent amount of trades under your belt and the averages are, therefore, more reliable, you can start to optimize your strategy by removing the markets, patterns, times of day, et cetera that underperform. If after 100 trades your overall average return is 10% but your average return for trading the S&P is 2%, it could be a good idea to stop trading the S&P. Similarly, if you like to trade ascending wedges but see your average return is -3%, that might be a sign it’s not a reliable pattern and you should stop trading it. There are dozens and dozens of averages you can track, especially if you record them for individual entry setups in addition to your overall trades, but they will all give you a deeper insight into the efficacy of very specific aspects of your trading that will greatly benefit you over time. I already mentioned a few averages you can look to track, but ideally, you’ll track it for everything you can. Whether it’s your average winning trade duration, the average return for long vs short positions, or your average risk-to-reward, they’re all useful and very simple to calculate.
Best & Worst Trades
In addition to averages, one of the simplest and best stats to track is for your best and worst trades. There are journals that automatically keep track of what those are, but it’s pretty easy to do manually if need be so there’s really no excuse not to do it. Reflecting on your best and worst trades is an excellent way to hone in on your strengths and weaknesses by highlighting the elements that made them fantastic successes or terrible failures. It could be that your best trades all took place on the 4h chart or shared the same confluence—or your worst trades all exhibited the same mistake and took place at the same time of day. It’s also possible that none of the trades share any commonalities, but it’s still worth checking because you’d hate to overlook a key driver of your biggest winners or losers.
Max Drawdown
Another very common statistic traders like to track is the maximum drawdown their account experiences throughout their trading. Every strategy has its losing streaks and knowing roughly how far you can expect to fall from a recent peak to a low point in your account value is psychologically helpful when trying to stick to your strategy. Knowing the range your strategy operates within can help you navigate losing streaks more rationally or just motivate you to tighten that range by taking less risk or polishing your setups. That said, while most people would probably strive to minimize their max drawdown to no more than 10%, a great strategy can be extremely volatile with drawdowns of 30% or more. That doesn’t mean it’s better or worse, but that kind of volatility is not suited for everyone and you’ll want to make sure that you have a strategy that aligns with your risk tolerance. Max drawdown is an excellent way to gauge that and will prove to be a useful metric when considering a strategy’s overall performance.
Another good reason to track your max drawdown is to be hyperaware of when your account drops below it. Dipping below your previous max drawdown could still be part of your strategy’s natural volatility, but it could also be a sign something in your strategy has changed. Whether that’s the market evolving or you slipping on your rules and risk management is for you to discover, but in either case, it could be a sign something with your strategy needs to change. A meaningful move past your previous max drawdown can be a wake-up call that you need to focus harder or revisit the drawing board.
Win Rate & Loss Rate
Though many traders misunderstand how a win rate and loss rate play into a successful strategy, both are undoubtedly statistics you should track. All it takes to calculate is dividing your total number of wins (or losses) by the total number of trades you’ve had, making this another fairly easy stat to calculate. The percentage you get from that calculation will also be one of the most actionable pieces of information you can get out of your journal. Knowing what percentage of trades you win and lose will tell you exactly how much your risk-to-reward ratio has to be to remain profitable, which is an incredibly useful bit of information to have. Whether you want to admit it or not, trading is mathematical in the sense that you have to have the money made from your winning trades add up to more than the money you lose from your losing trades. You don’t want to be left in the dark on what those exact numbers are and how exactly you can plan for profitability. Seeing you have a win rate of 33% means you need to make double what you risk if you want any hope of making it, so you’d be smart to avoid any trades aiming for a ratio below 1:2. The ratio will likely change as you add more trades to the dataset and your win rate adjusts, but it’s always something you want to keep top of mind. Just like a business needs to know exactly how much it needs to charge to stay afloat, you have to know how much you have to charge the market each trade to be profitable in the long run. Having your win rate readily available will make figuring that out as straightforward as possible.
Expectancy
Many traders might be unfamiliar with expectancy, but it’s one of the more useful stats you can calculate. Averages are extremely helpful, but they don’t take into account your rate of success or failure to deliver a more accurate estimation of what you can expect to make each trade. This means you’ll first need to calculate your win and loss rate, but realistically those are both stats you should have on your performance. Once you get those numbers, you take your win rate and multiply that by your average win (either percentage or dollar—it’s probably good to calculate both) and add that to your loss rate multiplied by your average loss, which will tell you what you can expect to make with every trade. This is helpful because it gives you a more realistic idea of how effective your strategy is than simple averages would. Your average win might be 15% while your expectancy is only 4%, which could tell you your losses are significantly hampering your performance. Your expectancy is almost always going to be lower than your average win, but the goal is to have it as close to that average as you can get it. Always remember that expectancy is the most accurate representation of how good your strategy actually is and what your overall return will likely gravitate toward.
Now, the stats I’ve mentioned here are just some of the most important ones, but there are endless more you can track with journals that all help you in different ways. You’d almost certainly be fine tracking just the ones I’ve mentioned, especially if you go full force into all the averages, but don’t limit yourself because you never know what could help. Pull everything you can out of your trades—more information is always better. There are journals that track just about everything automatically, so it’s no extra effort to track it all and just use whatever seems relevant.
Chart Picture
The last very important detail to track I wanted to mention that doesn’t necessarily fit into either the written or data journal camp is a picture of the chart right after your trade is closed. If you aren’t big on technical analysis, this may be a hard sell for you, but having a library of charts to go through for each trade can oftentimes be more useful than anything else I’ve mentioned thus far. Humans are very visual so slowly internalizing chart patterns and price action that lead to winning or losing trades will prove invaluable. All you have to do is take a screenshot and store it somewhere. If you don’t keep them organized with the other information on your trades, be sure to save the date and asset as the name for your records. This is honestly one of the best things you can do to improve your trading and it’s probably one of the easiest, so I would strongly recommend not ignoring it.
CONCLUSION
With all that being said, in the end, it’s up to you to decide which statistics and pieces of information really matter and what you believe will help your trading the most. Once you figure that out, you can find a journal or way of journaling that accomplishes exactly what you need it to.
If you want a journal that tracks everything I’ve discussed and a fair amount more, I actually created one in numbers (Apple’s version of excel). All you have to do is enter all the relevant information for each of your trades (date, setup, chart pattern, et cetera) and the formulas will do the rest, so it’s all very straightforward and easy to use. The first sheet is the actual journal and all the other sheets are filled with tables and charts so you can find and view everything in a logical and intuitive way, including all the stats on individual strategies, which is probably one of its coolest features. I also have pages and word templates for the written journal if that interests you, though that one is a lot easier to make on your own if you really want it. Nevertheless, if you’re interested in getting or checking out either the data or written journal, feel free to email me at [email protected]. You can also go to The Investor’s Gate Discord or reach out to me on Twitter @investors_gate.