Every time I ask Norman Hallett from TheDisciplinedTrader.com to "give us more" on a previous topic he's previously covered, he always delivers. What do I mean? Well, about a month ago Norman wrote a post discussing "Measuring your Trading Experience" and within the article he touched on an important part of many successful trader's daily routiens...a Trading Journal. So after many requests from readers Norman has come back to give us the BEST methods for writing and MAINTAINING a journal.
Please enjoy the article, to be notified when the upcoming The Disciplined Trader Intensive
Program will be held visit TheDisciplinedTrader.com to learn more, and please comment as much as you can below! We want to hear your journal story...or lack there of!
In The Disciplined Trader Intensive Program, where we train traders of all modalities to be disciplined in their trading, one of the topics we delve into deeply is journaling. You see, journaling is the most effective way to self-evaluate your strengths and weaknesses as a trader, therefore allowing you to target specific problems for correction.
Here are two very popular basic questions about journaling that keep coming up in our Intensive along with answers that I hope will be helpful for your own journaling:
What is the purpose of having a trading journal?
The immediate use of a journal will be to jot down and capture all the information needed to analyze your trading skills. You then use the information to improve your practical trading skills.
But if that was all that made up a good trader, then we would be seeing a lot more successful traders today. Unfortunately the statistics show that close to 70% of new traders fail and give up after 6 to 9 months of active trading. The other 30%...well out of that figure maybe only 10% make it and become really rich and successful. The next just manage to survive and can't seem to break through to consistent profits.
After a lot of analysis and research I have found that most of the "failures" did not have certain necessary tools to succeed. They are namely:
1) A proper trading plan
3) Money Management Rules
4) Correct PSYCHOLOGY
Your trading journal will help with point 2 & 4. In trading it is 99% attitude and 1% aptitude. You may have the best technical skills, but watch time you trade you are plagued with self doubt or fear or excitement. What happens?
Well your journal will tell you what happened. Go back and flip through it as you are reading this. IF you had placed your emotions in when you made the trade...look at the results.
Did you make a wining trade when you were angry, or afraid or overly excited?
Start tracing back to all your trades...a pattern will emerge. You can then start to train yourself to detach your emotions with the help of your journal.
Analyzing and looking at your trades to see what you could have done better is a good start, but you have to use your journal for more than that. Relive your trades, in your mind go through those emotions again. This requires you to be quiet and focused. If you are serious about making money as a trader these are essential steps you have to follow. Like Sherlock Holmes the crime is solved in your mind, with evidence supplied by your journal.
I will say that you use your journal for several things:
1) A guide
3) Information Booklet
5) Emotional dump
The most important in my opinion is the emotional dump and guide. Dumping all your emotions allows you distance your emotions away from the trade.
This is a huge benefit, but do realize that it will take some practice.
A guide helps you along the way...especially when you are in self doubt...it happens to us all. Look back in your journal and read and see just how far you have gone. You will be surprised at the results.
How do you go about keeping a journal?
Ok some quick tips ...
1) Be quick but accurate
2) Be honest
3) Be regular
These are my 3 B's of journaling next up or the 3 Ds'
1) Don't get distracted
2) Don't discuss your entries
3) Don't clean up your entries
Lastly I have the last cardinal rule
1) Write down everything and anything. All information is useful and helpful.
Let me explain my 3 Bs first
1) Be quick but accurate. Well this is really when you have a pile of trades coming along. Don't spend too much time thinking about what you want to write. You are not going to write a novel. The emotions are the important part you want to note down because we are using the journal as an emotional dump to help us store away our emotions when we trade. There is no need for proper spelling or grammar, as long as you can read and understand what you are writing then it's cool
2) Be honest!!! You know I had this problem when I first started, I used to dress up my journal. I have no idea for what! Maybe I thought that my girlfriend would like to read it someday (my current wife). It turns out that she wasn't really interested at all (quite the crushing blow to my ego I must admit...). You want to be totally honest because only then can you analyze your emotional state correctly. Your journal has become a tool for you to help you better understand yourself. This can only be accomplished if you are completely honest with your feelings.
3) Be regular. A lot of my own students have this problem, and they only write in the journal when they fell like it. or when they remember to write in it. You got to write in your journal EACH & EVERY trade. There are no excuses, because writing in your journal is an exercise in building your discipline.
Next, my 3 Ds:
1) Don't get distracted. When you are writing in your journal, focus on it and pour out your feelings into it. Completely unload everything into it. Do not look at your screen or do something else. You want to capture your emotional state like a photograph. If you are looking at your charts and something happens...your emotional state changes and that means you got distracted!
2) Don't discuss your entries. I know that it is cool sometimes to talk about our trades. Your journal is quite private and if you ever have the need to discuss your entries it should be with your mentor. The reason for this is that when you post it or discusses it with others; you open yourself up a lot of comment and advice. This is something you don't need, you have to be focused on your own plan not let someone else who has no idea what is happening in your trading life, just come in and pop off some remark which may affect your trading confidence and judgment. If have the need to talk about it, talk to God or to your mentor...in that order. Your mentor will of course be able to point you in the right direction but if you have to tap on your mentor's experience all the time, you will never be able to trade on your own.
3) Don't clean up your entries!!! I can't stress this enough! No editing at all. You want to relive your trading not publish your journal! So stay away from creative writing and keep everything original.
Lastly my cardinal rule:
"Everything and Anything" I really mean everything and anything. Just write what is on the top of your mind. Usually you will find that you can describe your state of mind in a single word. These, keywords are called "pattern language" and are used in many fields to help create easily recognized patters so that it shortens the time needed to describe and analyze things.
While this is a technical skill, what you can do is that you can just write based on your own vocabulary. You can use symbols (as long you understand what they mean).
It is important to note everything down as you will never know what is the most important information you might need for your analysis later on. So if omit 1 or 2 things...you might have just thrown away the critical clue.
Well, I hope this helps in your journal writing. Remember use what you have learned, follow the rules of taught in this course before branching out to evolve your own style.
Norman Hallett CEO and Head Trainer of The Disciplined Trader Intensive Program