I hear from a lot of traders asking various questions about how they can improve. Very often my first question in response is “Do you keep a trade journal?”
It’s always surprising to me that so many people who claim to be motivated and ready to do the work to rely on themselves for their trading aren’t able to take even the first step towards it.
When I first started keeping a trade journal I used Excel.
There weren’t any online trading journals at the time, so I created the first called StockTickr, and eventually sold it to Trade-Ideas.
My trading journal was critical to my early trading success, but it wasn’t until years later that I realized the cumulative returns that a journal provides.
As my trading continued to improve, eventually I created my own strategies and the dutiful maintenance of keeping a journal really began paying off.
The value of a journal escalates as you transition from a newbie trader following others to a totally self-reliant DIY trader.
Beginning traders benefit from a journal because it forces you to make the transition from trading aimlessly with no real plan to trading a system.
The daily ritual of recording your trades makes you confront your tendency to trade out of boredom rather than trading with intention.
A journal doesn’t lie – its brutal honesty allows you to honestly assess your trading performance.
As your trading improves and you transition to relying solely on yourself to trade, a journal becomes even more valuable.
Your backtest is theoretical, but your journal reflects reality. This is immensely valuable!
Your journaled trades contain all the messiness that comes with live trading that can’t be captured in a backtest:
- Partial fills
- Missed trades
- Trading mistakes
- Slippage (entry and exit)
- Locate costs
When you’re backtesting, these trading realities can’t be accurately accounted for and are therefore big unknowns.
That’s exactly the opposite of a trade journal which reflects your ACTUAL performance, warts and all.
This makes your entire trading process better, from idea generation to backtesting to live trading.
Over time your journal becomes a bigger and bigger database of your actual trading experience.
If you want to rely solely on yourself rather than someone else for your trading, a journal provides your foundation for continued improvement.