27/02/2010 05:13:24
Tom Leeson
Administrator
Posts: 661
|
Using a Trading Journal
A trading journal can help traders gain important feedback from live
trading and forward testing performance. This type of trading diary,
includes detailed information about individual trades
that performance reports alone do not provide. A trading journal can be
used for the following purposes:
1. to be able to justfiy why you placed a trade and stick to the system
2. To identify potential weaknesses in a trading plan.
3. To verify the individual trades in brokerage account statements.
4. To help determine areas where live trading performance can
be improved.
Whenever live trading or forward performance testing (paper trading),
traders should use a trading journal. The date, time, price, direction,
reasons for the trade, and individual trade notes should be written down
for each trade. In the simplest sense, this provides a record of trading
activity that can be later used to evaluate the performance of the overall
trading plan.
A trading journal can help traders find potential flaws in the plan that
may only become obvious during live trading. For instance, traders may
discover on days when there are Federal Reserve Meetings (commonly
referred to as Fed Days), trades do not follow through or quickly turn into
losers. This type of observation, recorded over time in a trading journal,
can be later evaluated and, if confirmed, a Fed Day filter (for example)
could be added to the trading plan. As another example, if a trader notes
that nine out of ten losing trades were barely stopped out, it may be cause
to evaluate the stop loss level in the trading plan. Conversely, if a trader
notes that nine out of ten winning trades would have gone on to much
greater profits, it may be cause to evaluate the profit target level(s) in the
Live Trading
A trading journal used to record live trading data.
trading plan. And, as noted earlier with the Fed Days, outside factors, such
as the release of economic data, can turn out to have a predictable effect
on a trading plan. The goal for this type of analysis is to create a more
profitable trading plan that is tuned to live trading experiences.
Another useful purpose of a trading journal is to confirm the trading
activity from a brokerage statement. A brokerage statement,
lists the trades that were taken during the month. Similar
to balancing a checkbook, a trading journal can be used to confirm each
trade transaction and verify that the broker has not made any errors. Entry
and exit prices, profit and loss figures, and commissions and fees should
be carefully checked each month. It should be noted that many brokers
require notification within 24-48 hours of trading activity if there is an
error in their records; for this reason, it is recommended that traders also
check each daily electronic statement (if applicable) for accuracy.
A monthly brokerage statement that is often sent electronically.
Possibly the most critical reason for using a trading journal is to
be able to assess live trading performance. Since traders are ultimately
responsible for evaluating their roles as market traders, reviewing these
journals can help spot aspects of live trading that require improvement.
The individual trade notes section can be especially telling if it is filled out
thoughtfully. It is important to note if the trading plan was not followed
and, if not, to explain why. An amazing trading plan can still lead to great
losses if it is not traded correctly. It is essential that traders are honest with
themselves and that they identify problem areas in their live trading. There
is great opportunity in the notes section of a trading journal; it is recommended
that traders put solid effort into this aspect of the journal since it
can provide useful information that is not available from other sources.
edited by tom on 27/02/2010
edited by tom on 27/02/2010
edited by tom on 27/02/2010
--
MicroTrends tom
|