Keeping a Trade Journal

See my options.about.com site for a blog post and a series of articles about making trade plans and keeping a trade journal.

It is very easy for us to think about a trade: make the trade, wait a while and then take our profit or loss.

It is very beneficial for us as traders when we have a good record of the thoughts that went into our decision-making process as well as the results of the trade. When we return to read our journal entries, we are removed from the time and place of the trade and can analyze the results as if the trades were made by another trader. We can learn from our past decisions.

The objective is discovery

  • Was your reasoning sound? Or did you make a poor decision?
  • Recognizing that you made a bad choice, you should be able to understand what went wrong and how you can avoid a similar mistake in the future
  • Did you choose a strategy that was appropriate at the time, or did you take a shortcut and rely on using your bread-and-butter strategy without any real thought?

Was the trade profitable?

  • If yes, did the trade plan help you earn that profit?
  • Were you just lucky and earned a profit despite making errors?
  • Is there a lesson to glean? Is there something you want to be sure to repeat next time?

Was the trade a money loser?

  • Did you make a mistake? What was it? Did you ignore risk management?
  • Many times, the trade was unlucky. Was that true in this example? Be honest.

Trade plan example: Writing Covered Calls.

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