Why You Need a Trading Diary
Traders must realize that they will continue to make the same mistakes over and over again if they don't hold themselves accountable.
Many traders develop temporary amnesia, shying away from the type of internal accountability that allows them to learn from their mistakes. Why? Simply put, traders have fragile psyches (replace with egos). And because of this many trading memoirs end up with a blankie in the dark recesses of our brains. Yeah, trading can bring out some pretty pretentious behavior. The answer: Toughen up, do the right thing, and start a trading diary. It will make you a better trader, and a better person at the same time.
While it's understandable that traders want to move on from a bad trade because they don't want to dwell on it (good idea), it's the "you're only as good as your last trade" culture that can be a double-edged sword. On one hand, it's great because it keeps us focused on the next trade, but on the other hand, it's bad because it doesn't push traders to be accountable for, and learn from, their mistakes.
Striking a delicate balance is key. Trading is psychological, so we need to be sure to protect, empower, and unleash our inner risk-taking skills. Yet at the same time, traders must realize that they will continue to make the same mistakes over and over again if they don't hold themselves accountable and relish in the battle scars that truly make them better at their craft.
Now I'm not proposing a cry-it-out pity party. Far from it. I'm talking simple accountability – as simple as acknowledging your trades. Start by creating your own brokerage-like statement with positions, entry dates, exits, gain/loss results, and a column for diary notes. Also include year-to-date market performance metrics for your most followed indices (i.e. S&P 500, Dow Jones Industrial Average, Nasdaq 100); this will give you a standard to work against. (See fictional examples below.)
Entry Date: 2/3
Entry Price: 134.02
Exit Dates: 2/17, 2/18
Exit Prices: 136.42 (100) & 136.91 (100)
Notes: Setup near support. Nice scale out – took off in halves.
Ticker: TGT - Target Corp
Entry Date: 2/6
Entry Price: 52.01
Exit Date: 2/15
Exit Price: 51.62
Notes: Good entry, but stop was set too tight. Shake out took stock down to 52.41 before reversing higher. Should have reentered upon break higher.
As you continue to log trades, you'll have more to add, especially for those closed trades that continue to dance in your head. And even if you aren't big on keeping notes, just the fact that you acknowledge your trades will help you brand them in your memory and make you more likely to repeat successes and avoid past failures. And the best part, you'll see them every time you open up your trading diary. This will ensure that your trading education doesn't get lost in some mindless electronic brokerage statement that is rarely opened. Get in touch with your trading and start a diary today. Cuz you're only as good as your last trade (smile).
Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market. His writings also appear on Minyanville's blog community.
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