Before you start creating a Trading Journal, it is important that you’ve worked through your Trading Psychology to get a better understanding of the strengths and attributes you bring to the profession.

Trading Journal

You built a successful Trading Plan to fit your Trading Psychology.

These are both important steps to take before you know whether you have what it takes to transition into a successful, full-time trader.

Now what?The next step is to develop a Trading Journal, a daily diary where you record the history of your trading, and all the thoughts and feelings that motivated you to each action. A Trading Journal is your learning tool, designed to help you stay on task. You’ll use it to review your trades, find more trading system resources, and keep you focused. It’s not a complicated tool, but its importance can help increase your profits and reduce stress over time.

“What do I do on a daily basis?”

“How do I keep up with this daily activity?”

“What type of tasks should I be doing?”

These are all important questions you should be asking. This part of trading is like working out. You probably won’t notice any change the day after, or even the week after, but if you stay with it long enough, eventually you’ll notice the positive effects of your hard work.

The same goes for writing in your Trading Journal. The Trading Journal may not be your favorite part of each day, and require more discipline than you’re initially comfortable with, especially if you don’t see any immediate improvements in your portfolio. But if you stick with it, and make an honest effort to record any and all information that could be useful, it will become second-nature, and over time, your data will reveal patterns of wins, losses, and errors in judgment that you can reflect on for better decisions in the future.

Before we begin with the Trading Journal entries, themselves, let’s start with one fundamental distinction, whose importance cannot be overemphasized. Then we’ll discuss four stock watchlists and the importance of indicators. They’ll all play an integral role in the information you’ll use in your Trading Journal.

Money to Live On Versus Trading Capital

This not part of the Trading Journal, per se, but it does have an impact on your trading.

How much money do you have set aside to trade? More importantly, what was it originally earmarked for? I know I’ve already addressed this in the Trading Basics section, but it’s worth repeating several times. If you don’t have any money set aside, take the time to generate it before you begin trading. This additional revenue is called “Trading Capital.”

Below is an example of a daily task list, and how to use your Trading Journal to help improve your trading. Not everyone will have the same daily tasks, so it’s important to design your days in a way that will work best to maximize your type of Trading System.

Four Stock Watchlists

These are all pieces of your Trading Journal.

The first list will be your potential trades. These are positions that screen well, but are not near an entry signal.

The second consists of positions that are near an entry signal. These are the two most important lists to maintain.

The third is a list of ideas that came up as you were reading the newspaper, watching CNBC, or browsing online. You don’t immediately know if these stocks will fit your screen criteria, but they’re interesting either from a fundamental or technical perspective. This list will require additional research. The reason is that most screens will not catch everything that fits your criteria, and sometimes you’ll find a good candidate just by reading.

The fourth list is your current holdings. You’ll create this list so you always have an idea of what you’re currently in, just in case news breaks, or something comes out that would cause you to look at a potential extreme exit.

Some people like to work off of fixed lists, and don’t change positions very much. Others like their lists to be very fluid, and change on a daily basis as they find positions they like better than those they already have.

These types of lists can be built on just about any trading platform, such as e-trade, TD Ameritrade, Fidelity, and Schwab. You can also use a web-based program to build your lists. Some are free and some are tied to an association if you want to save your lists. A few examples of the free watch lists are: CNBC, Google Finance, Yahoo Finance, and Big Charts. You can also sign up for membership sites, such as Stockcharts and Freestockcharts. These have both premium and free services, depending on how much of their features you want to use.

Trading Setup

A trading setup is a set of indicators that help you make the decision of whether to look for long or short positions. This will be important to your overall Trading Plan and help when you’re recording your daily thoughts in your Trading Journal. There are lots of ways to create setups, and no one way is correct or right for everyone. You need to make it fit your trading style.

If you need ideas on how to create a Trading Setup, we go into more detail on the Trading Plan page.

Sample Trading Journal Entries and Ideas

Okay, now it’s time to write! Following are examples of the types of activities that should be performed, and then recorded in your Trading Journal. These activities best describe the trader interested in spending about 10 to 15 hours a week in trading.

Sunday

Set aside about an hour to review the big picture. Make sure you’re taking trades in the direction of all the indicators you put in place for your Trading Setup. (For more information on Trading Setup, please see Trading Plan page.)

What does the Investor’s Business Daily, or your favorite investment newsletter or economist, say about the markets? Make notes in your Trading Journal so you can go back and review the accuracy and type of markets you were in to get a better understanding of where your systems worked best.

Stockcharts.com is an excellent charting website that allows you to set your indicators and make notes on your charts. This is helpful in a Trading Journal so you remember your thought processes when you initially took the position. Using Stockcharts.com, you would look at your indicators to see the 20 day above the 40 day moving averages on the S&P 500 ($SPX), Nasdaq ($COMP), Emerging Market ETF (EEM), EAFE (EFA) and the US Dollar Index ($USD). Use them as examples of broad market indexes that could give you a better picture before you make your next move.

Are any of the companies you’re holding reporting earnings for the coming week? Is there any news that came out on your holdings over the past week that you need to take into account?

Record your thoughts and ideas in your Trading Journal.

Monday through Friday will start out with the same plan and objectives to help you understand the decisions you’ve made, and their consequences. It’s imperative that each action, and consequence, be recorded in your Trading Journal to improve your decisions and help with future strategy.

Based on this specific trading plan, there are four daily tasks you need to complete and record in your Trading Journal every day. Depending on the type of Trading Plan you develop, your Trading Journal may have different daily tasks than the ones represented below. Make sure you develop your Trading Journal to fit your specific Trading Plan.

Monday through Friday daily tasks:

  1. Review current holdings and make sure appropriate stops are in place. This can be done by entering the order, or setting an alert to help you keep up with your mental stop. You would need to either do this the day before, or in the morning before, the market opens.
  2. Run your stock screens to give you a list of potential trades ideas. Narrow this down to a manageable list of 20 to 30 stocks to add to or replace on your current list.
  3. Manage your current lists. You’ll have to continually prune the lists. There will be stocks that move away from your buy area, ones you bought that need to move onto another list, or stocks that just need to be replaced by a potentially better candidate.
  4. Catch up on the market action for the day. Did your stocks move up or down? If they moved up, you may need to change your stops based on the type of exit you’re using. This is best done directly after the market closes. Did any of your trades execute? If so, then you need to record the trade in your Journal. Make note of anything that affected your trading, from outside distractions to internal emotions. For example: You needed to put in a trade from a signal you got, but took a phone call instead. You started watching a position that was going up or down, got excited, and took the profit or loss before it hit your predetermined exit signal. You saw an interesting position and just bought some without positions sizing or research to see if it fit your criteria. All these actions need to be recorded so you can go back and analyze them to see how they ultimately played out. Read any news for the day, and scan your Big Picture charts to see if there were any material changes.

Additional work to be done:

Trading is about constant improvement, so you need to devote a day or two to additional research. You’re the “machine” in this business, so you need to create opportunities to hone your skills to ensure there’s no problem moving forward. This can be as quick and easy as reading a book on new trading ideas, or attending a seminar on Trading Psychology, to fix some of the mistakes you’ve been making over time, and now put better decision-making and strategies into focus. Whatever it is, to be successful, you must continually improve your game!

Read additional news stories on your holdings, and potential new ones, to get a better understanding of what catalysts may happen to move your stocks up or down. This is a great time to find out what factors affect the stocks on your lists. Remember, no matter how much you rely on technical factors to screen, the more you understand the companies, the more you can identify why things happen the way they do. (“Knowledge is power”!)

Once you’ve built a trading plan that’s consistently making money, it’s not time to stop. If you’ve created a successful Trading Plan, do it again. Most traders have several trading systems. So start researching other types of markets, or maybe you want to develop a long-term system that will keep you in the market for an extended period. This would be a good compliment to a short term trading system. Once you’ve developed two to three systems, you’ll need to create a strategy to allocate money between the systems based on the current market and your indicators. This can help you smooth out the dreaded draw downs. This additional work is not required, but once you’ve successfully traded a system for a couple of years, you’ll start to understand under what markets it works best, and may want to develop another system to take advantage of other market types.

Other types of tasks you should include, but don’t need to be done on a daily basis

  • Print out your broad market charts, and keep a file of them so you can go back and review what they looked like when you made the trade. This is also good to do, from time to time, for the positions you own. Remember, the more pertinent the information you keep for your Trading Journal, the more effective your strategy, and the better the outcome.
  • If you keep a lot of trading data on your computer, you must sure to back it up at least once a week. There’s a lot of information you don’t want to lose! Also, you’ll need to maintain your computer in optimal working order so it doesn’t crash. The following steps should keep it maintenance-free:
  • Install an Anti-Virus program.
  • Ensure your firewall is enabled or you are behind your router.
  • Check that your hard drive is less than two-thirds full.
  • Set up your operating system to perform all its functions automatically.
  • Last, but not least, you need to create a way to track your positions and strategy. Here’s an example of a worksheet designed to help you check off your criteria, position size, and track your stops. Its purpose is to make you work through your strategy and positions sizing before you take the trade. You can modify this to fit your Trading System.Daily Trading Journal WorkbookThe Trading Journal is a simple way to improve your trading. It takes discipline and time but is well worth the effort.

Taking the Leap!

Have you been trading successfully for 3 to 5 years? Until now you may have been trading part time, while still working at your day job. Maybe it’s time to start researching how to trade for a living. You’ve built your trading capital to a point where you feel you could quit your job and trade for a living. What’s next?

Do you need to set up a corporation or LLC? Do you want to trade exclusively for yourself or others as well? This is a business, so treat it like one. If you’re going to trade for others, there are important consideration to address, such as creating a trading entity, setting up your accounting systems, and deciding how you’re going to charge your fees. In the meantime, if you’re already to the point where you’d like to quit your job and start trading full-time, I strongly suggest you begin by reading Super Trader by Van K Tharp Van Tharp Institute

.

Here is a blurb from his book:



How do you transform yourself from mild-mannered investor to Super Trader? Think clearly. Plan accordingly. Commit completely. In other words, become a trader. And no one is better suited to help you make that transformation than legendary trading educator and author Van K Tharp.Combining the sharp insight and technical brilliance that has drawn legions of investors to his books and seminars, Tharp provides a holistic approach for becoming a successful full-time trader. His system – a meld of investing psychology and sound trading practice – is the secret to achieving optimum conditions that produce results in both bull and bear markets.

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