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Why You Need a Trading Diary

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Traders must realize that they will continue to make the same mistakes over and over again if they don't hold themselves accountable.

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Have a trading secret? Least you can do is share it with yourself.

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.)

Ticker: SPY - S&P 500 ETF
Entry Date: 2/3
Entry Price: 134.02
Shares: 200
Exit Dates: 2/17, 2/18
Exit Prices: 136.42 (100) & 136.91 (100)
Gain/Loss: $529
Notes: Setup near support. Nice scale out – took off in halves.

Ticker: TGT - Target Corp
Entry Date: 2/6
Entry Price: 52.01
Shares: 500
Exit Date: 2/15
Exit Price: 51.62
Gain/Loss: -$195
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.

Twitter: @andrewnyquist
Positions in S&P 500, SH

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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