Taking notes in a trading journal can help you better understand trading and provide insights to improve your trading.
Although we live in an interconnected world, trading can often be an isolating endeavor. A trader’s need to process the nonstop streams of data and information the markets generate can create an inner echo chamber in which thoughts and ideas lose objectivity and bad habits are reinforced.
One simple way for traders to break out of that feedback loop and potentially improve their trading skills is to keep a trading journal. After all, you can think about trading ideas, you can talk about them, or you can write them down. But written notes are much easier to review later than thoughts or conversation.
When you write trading ideas and details down, they’re less susceptible to interpretation later. It’s easy to convince yourself that what you thought or said two weeks ago was different than it really was, but that’s pretty hard to do when notes exist in physical form on paper or the computer screen.
A trading journal facilitates this objective ability to review, analyze, and correct trading mistakes when needed.
There’s no correct way to keep a trading journal; they vary from trader to trader. The approach you choose should work for your trading style and your personality.
Find your best fit.
If you’re a swing trader or a position trader, you might want to take a few minutes after entering a position to write a quick summary of why you initiated a given trade, what was happening in the overall market at the time, and the trading plan going forward.
If you’re an active day trader, it may not be possible to journal about each of your trades as they happen. Instead, you might want to carve out an hour after the close to review your executed orders and annotate any significant trades.
But there’s more to a trading journal than writing down the technical aspects of trades. Try to jot down your frame of mind when you entered those positions. Did you approach each trade objectively with a sound methodology? Were you anxious about a recent loss or elated after a big win? What was going on in your life outside of trading?
This subjective part is especially important because trading is a mental game. Sometimes we don’t recognize how negative thoughts and patterns can affect our ability to be profitable. But when you record your mindset along with your trading history, you can better understand how the two work together, over time.
Let’s consider a few trading journal examples just to get an idea of how this works.
Say you were reviewing your stock trading journal and noticed you were losing on a higher percentage of trades that were done midday. That might make sense because there’s often no trend in the market during the middle of the day. What would happen if you stayed out of the markets during that time? How would that affect your winning percentages?
Or perhaps you notice that you’re losing money on certain stocks consistently in a way that wasn’t obvious until you started reviewing your trading journal. Maybe you would decide to do more thorough research on these stocks to see why the losses occurred. Perhaps the stocks you traded were erratic, had wide bid/ask spreads, or were less-than-optimal trade candidates for some other reason.
Suppose you’ve closed out 50 trades over the course of the quarter. This might be a time to check to see what those stocks (or other investments) did after you exited. Did most reverse course and achieve profits that you weren’t there to enjoy? If so, maybe your exit strategy could use some revisiting/loosening. It might also hint that you misread market conditions at the time and might need to brush up on that approach.
Or maybe most of your stocks continued to fall in value? This may confirm that you were on the right track with your decision to close, but was there room for an even earlier exit to preserve even more profit or take smaller losses? A careful trading journal holds the potential to deliver valuable data you could use to refine an investing or trading strategy over time.
Whether your trading journal is on paper or digital, ultra-detailed or in summary form, it can help you better understand your trading and provide insights that could help you.
Ready to get started? Consider jotting down notes on thinkLog, which can be found on the thinkorswim® trading platform from TD Ameritrade. Select a symbol from your watch list and then choose thinkLog notes. You can create notes on a specific symbol about a particular trade, make a checklist (see figure 1), or record any other thoughts you may have. And you can access all your notes from the Tools tab; just select thinkLog to review your saved notes.
FIGURE 1: START A TRADING JOURNAL. Record your thoughts, create a checklist, enter trade details, and more with the thinkLog tool. Image source: the thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2024 Charles Schwab & Co. Inc. All rights reserved.