Newsletter No. 15

7 December 2008

Why You Need A Trading Diary

In today’s newsletter I will outline the advantages of keeping a trading diary.

Just a quick note before we start:
If you think the content of my web site and newsletters is good, feel free to email this one and tell a friend. They'll appreciate it and so will we! Please do not spam, thank you.

I am very grateful for my subscribers and hope you enjoy each and every issue of my newsletter. I always invite you to provide any feedback and suggestions and I wanted to just repeat that invitation. This newsletter and my web site is for you, I want to be sure it is working for you. Email me any questions, feedback, suggestions etc.

If you have any topics you want us to discuss, please email me at and include the topic request. I will do my best to comply.

Why a Trading Diary

Rarely can you find two traders who agree on any of the finer points of trading or analysis, and each day financial experts offer such different opinions about the markets that one has to wonder if they are all looking at the same thing.

However, there is one thing is for sure. Just about all successful professional traders agree that it is important to maintain a trading diary and analyze your trade performance. Your records may differ in their particulars from trader to trader, but they all serve the purpose to document the reasons, execution, and outcome of every trade you make, with the goal of correcting past mistakes and building upon prior successes.

Logging and analyzing your trades is one of the most useful tools you have at your disposal. It costs nothing and can save you considerable time and hardship.

What should you track?

A trading diary should document the reasons for entering a trade, where and why you entered and where and why you exited. You should also note any adjustments to the position you made along the way. Also record the result and whether you adhered to your trading plan. Without such a log, each trade you make can disappear quickly from you memory and take its valuable lessons with it.

You should also include such elements as the initial risk/reward ratio, (divide the expected profit by the initial risk determined by the stop-loss point). Post-trade statistics should include a summary of the average trade, average win and average loss. You should also have a field for entering any comments or observations about the trade. Together, these records provide an indication of how you expected a trade to progress and how it actually was carried out.

What can your trading diary tell you?

First of all (and perhaps most important) it will tell you whether you adhered to your trading plan. This is in my mind one of the biggest benefits of maintaining a trading diary. (See my article on creating a trading plan). A trading plan is only as good as your ability to follow through on it and the success or failure of a trade can be thought of as a function of whether or not you efficiently executed it.

If you constantly change a trading plan, by not taking a particular entry or exit signal, not adhering to your stop loss, not taking profits where you had planned, trading a smaller or larger position than you should, then you will never know whether your fundamental trading strategy is working.

On the other hand, if you follow through on your plan, you can look at the results and determine whether the plan has flaws and then correct them.

For example, if you have lost money trading a certain day trading system that you have carried out faithfully for the past few months, then you can analyze the different aspects of the trades and find out what went wrong. If you had deviated from the plan you would have no way of knowing whether the plan itself was flawed

So a trading diary provides a helpful reminder of tactical mistakes you tend to repeat. Unless you have a record of your past trades, you might have no idea on how this practice of changing your plan during each trade has impacted on your bottom line. Be realistic and be honest with yourself.

Certain information might not be critical to you for your success and it may be impractical for you to record some data. For example, extremely active day traders will be hard pressed to record every trade they make. The time of the trade may be irrelevant to longer-term traders and investors. As you record your trades, it will eventually become clearer what you are able to include in your diary and what information is most helpful.

Over time, these trading records will provide a great insight into the strengths and weaknesses of your trading approach and execution skills.

Tracking your trades in a diary also helps to foster discipline by requiring certain elements (stop loss is one of them) of the trade to be determined at the time of entry. You force yourself to have a good plan in place when you enter the market. However it is not enough to simply record the details of your trades, you must also review them regularly to be able to benefit from it. As you compile more and more information, you’ll be surprised by the number of things you learn about the markets, your trading habits, and your personality.

The market will provide beginners (and more advanced traders) with some tough lessons. Losses and mistakes are impossible to avoid, but hard lessons are of no value if you don’t learn anything from them. To make the most of your experience, keep a trading diary.

It is of benefit to look for a good mentor to help you to keep on the path of learning. I f interested, look on my web site where you can find a good (I hope) and affordable mentoring program. I may well be of help to you.

If you have any questions, please do not hesitate to email me.

Email: mailto: ejk@tradingaustralianshares.com

An opportunity for you
Are you looking for a good CFD platform? Why not get a demo platform from IG Markets?
I invite you to open an account with IG Markets through my web site and offer you a free one month membership of my unique mentoring program.
Unfortunately for the next week or so the link on my web site to IG Markets is not active. However please send me an email and I will arrange to have the demo platform and required forms sent to you.
Once you have opened the account and funded it, you will be invited to join my mentoring program for one month for free, absolutely no obligations.
Just email me on ejk@tradingaustralianshares.com with your details. Don't miss this opportunity.

Happy Trading,

Eric
www.tradingaustralianshares.com

Join my mentoring program

Just email me on ejk@tradingaustralianshares.com with your details. Don't miss this opportunity.

Happy Trading,

Eric
www.tradingaustralianshares.com