Trade Secret #1 – Getting a boost from jounalling

Everybody is looking for a Trade Secret to help with trading. When new traders are told what works in trading, they quite often take a look and think “that looks like actual work”. They then go and fall for the sales pitch of someone offering them riches in 5 minutes a day, for just $999.99 and a set of free kitchen knives. In trading, your rewards are directly linked to the effort you put in. People confuse a trade secret with a shortcut. The problem is the sort of shortcut they want is the “5 minute fix type”. So let’s look at things that really help. Trade Secret number 1 – the Journal.

Every educator worth their salt will tell you “It’s important to log your trades”, to keep a record of your trades in order to track your progress. That’s no trade secret? Or is it? Well the nuance of journalling certainly is.

Almost all traders fail to heed this advice. In fact, of the traders I work with, I’d say that less than 5% actually keep a consistent trade history. It’s not just laziness at play here; there are practical reasons and psychological reasons that make keeping a journal a challenge. The trade secret about journalling is that it helps but it is going to be painful and NOT because of the time or effort it takes.

Journalling isn’t something specific to trading; it helps with many endeavors – recording your food intake and exercise on a diet, recording your performance in sports. It helps in long term endeavors where you need to improve over time with consistent practice.  Part of the benefit of journalling is tracking the results and monitoring the changes in performance but it also appears that journalling actually helps you to stay on track. Studies have shown that people on a diet that journal are far more successful than those that don’t. It’s as if the journal is your big sister looking over your shoulder keeping you in line

Before we consider the challenges, first let’s consider what information might be useful in a trading log.

Date, Time, Instrument – Seems like basic and obvious information. Time is very important, especially when compared to open/close times. A trade taken 15 minutes after the open may have a different hit rate from a trade taken one hour in. The last 15 minutes of a market display markedly different action than the middle of the day. You cannot ignore the fact that we have an Asian Session, European Session and US Session and that trading across those open/close times produces different action in certain markets.

The type of trade you took, the ‘setup’ – If you have a number of different ways or reasons to enter the market, some may work better than others.  It makes sense to categorize your setups in order to be able to weed out or refine the ones that don’t work so well. Let’s assume that the ‘setup’ includes both the reason you enter AND the way you would manage out the trade, set your stops & targets.

The market conditions at the time you took the trade – Was the market in a range or trending? Was volume above average? Were correlated markets/market internals supporting the trade? Had news just been announced? It is very important to make a note of how volatile the market was as volatility tends to change throughout the year. Some setups may work better in slower periods. Perhaps using  a measure such as ATR or the average amount of liquidity on the DOM or how much volume was trading.

How well you followed your plan – give yourself a 0-5 rating with zero being “totally random, off plan trade”. You may find that would do well if you didn’t keep hitting into the market when your ‘gut’ told you to. You may find that you entered the market well but saw a move against you and didn’t get out according to plan and “hoped” it’d come back. Give that a 1 rating. It could be that the off plan trades are your best but it’s imperative to be able to compare trades that followed your plan to those that didn’t. It’s no trade secret that we all ski “off-piste” sometimes. Logging it will bring you back to reality when you see the impact of going off plan.

MAE, MFE, Profit – MAE – Maximum adverse excursion AKA “How far did it move against me”. MFE – Maximum Forward Excursion AKA “How far it moved my way” and your actual Profit. If you are recording MFE, MAE, then you should record your profit in the same unit – ticks or pips. You may be scaling into or out of trades too, so you’ll need to record that info. Of course, it makes sense to also note the actual profit/loss in the currency you trade in too. MFA and MFE help you fine tune your stops & targets.

Notes – This is perhaps the most important part. How you felt about the trade, why you took it why you didn’t follow your rules. Stuff that can’t be encompassed in a statistical measure.

The best One of the Trade Secret about journalling is that it’s not just for statistical analysis. If you felt tired and traded poorly, and that repeats itself each time you trade tired.  You might want to just take a few more days off.

You could log other things but for now, let’s consider the list complete and consider why you aren’t actually doing it.

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Jigsaw Trading
After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com.
Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.
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Jigsaw Trading

Jigsaw Trading

After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com. Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.

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