One thing I highly recommend doing is maintaining a trading journal or spreadsheet. Some of you may be like ehhh I can just look at my transaction history with my trading broker and see all my trades. Sure you can do that, but it doesn't break down everything in as much detail as you would want or need. What if you want to know what your profit/loss is for the week, month, year or want to know what your average percent gain is. Maybe you want to know how many trades you execute daily, weekly or monthly. You would be amazed at some of the data you can pull from your trades and how it can help you be a more successful trader just by logging all of your trades in a journal or spreadsheet.
In the conclusion of this post I will include my personal trading journal as well as the online journal that I use daily.
Some of the things you may be able to identify by logging your trades are:
- Profts & Losses
- Entry/Exit Points
- Favorite Industry
- Moments of Weakness & Arrogance
- Emotional State
Profts & Losses
Obviously, in order to determine if you’re successful you need to see if you’re actually making money. The easiest way is to look at your overall balance. However, if you have positions in multiple stocks this can be somewhat difficult to track especially when using a swing trading strategy. This is why it’s important to track your trades. With the proper set up you can quickly identify your overall gains and losses and where you stand with open orders.
Tracking your entry and exit points is important to be a successful trader. It can be extremely useful to see your average pips per trade that you’re making/losing. It can also give you an idea of how successful a stock is if you trade it over a long period of time. There will be many times when you trade a stock in one month and find yourself trading it again in another, especially if there is news. Most traders find their favorite stocks to constantly play and usually this can lead to successful profits. If you know that each month a specific stock tends to gain momentum near the third week of the month then this can be a trend that other traders know. This will push volume up and allow the smart traders to ride a quick wave to some profits. A trading journal can help you identify these trends.
It’s especially important to track all of your fees. There are many different broker options out there now and if you’re overpaying in fees it is cutting into your profit. Determine how many trades you make a day/week/month and see if there is a better option out there for you.
It’s not unusual to find traders only buying and selling in certain industries. For example, you may find you profit more by buying oil and gas stocks. Or perhaps your better at finding news on biopharmaceutical companies than in the tech industry. Whatever your industry, a trading journal can help you figure out which one you profit the most in. If you find that biopharmaceutical companies tend to make you larger profits per trade than it may be wise to prioritize these opportunities over other stocks in other industries.
Moments of Weakness & Arrogance
There will be plenty of times in your trading career where you feel over-confident in something. Maybe you read an article written by a top analyst that just feeds into your love of a company and you dump a large portion of your portfolio into that stock. Or maybe you were too conservative and shied away from profits too early. Either situation can be determined with your trading journal. It’s especially easy to see where you screwed up. Usually those have a big loss marked up in red, or another color you’ve deemed your enemy. Understanding why you took that loss is so important. The trading journal allows you to go back and pinpoint where your biggest mistakes were and gives you the opportunity to research why this trade failed and hopefully prevent you from making the same mistake in the future.
Tracking Your Emotions
A trading journal can also help you become a better trader by understanding whether or not you’re trading on emotions. The fact is when you’re riding a big wave sometimes a trader can get carried away. It’s easy to see these types of trends when you’re looking back at your trading history. For example, let’s say you purchased a stock for $1.00 and at $1.20 you purchased more and then again at $1.30 thinking the wave was going to continue but it didn’t and you stopped out at $1.21. A trading journal can help you track these moments of emotions. Perhaps the next time when you catch yourself making that second buy you’ll set a proper profit target and find an exit before becoming too greedy.
Most importantly though a trading journal is exceptionally handy when it comes time for taxes. If you have a detailed trading journal it can not only assist you in determining your capital gains/losses but it can also be extremely helpful if you’re paying an accountant to do your taxes on your behalf. If you present a detailed list of transactions to your accountant they will love you forever. There are plenty of people who get audited each year. If you report a lot of profits or tend to write off some big losses then you are increasing your odds of getting audited yourself. If this situation should arrive and you hand the IRS a copy of your entire trading journal for the year it sends a message that you’re well prepared. It usually helps correct a lot of confusion along the way as well.
If you've learned anything from this post, remember that it's important to set aside a little bit of time at the end of each trading day to analyze your trades and log them in a spreadsheet or journal whichever you find easier to use or most helpful. I personally log my trades in two different places after each trading day. Once through a website, which I highly recommend, it's called TradeMetria, this web program is super easy to use and provides you with a ton of analytical data about your portfolio. The other way is the old fashioned way via a spreadsheet, I like using both because I get great analytical data from TradeMetria and I get a quick and easy to view snapshot of my trades via the spreadsheet which you can download by clicking here.