Just ask yourself right now: Do you remember your last 10 or 20 trades? Do you remember what went wrong and what you should have done? Can you recall what you did particularly well and what you need to do more of? Which mistakes do you keep repeating, when, and how much are they costing you? Jesse Livermore, a legendary trader, once said, “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”
Of course, no one will be able to recall all their previous trades from the top of their head. But how can you expect to become a better trader if you do not know where to improve and how to do it? As Paul Tudor Jones, one of the world’s most successful traders, said, “The most important rule of trading is to play great defense, not great offense.” And to do that, you need to be able to identify your weaknesses and fix them.
In the end, trading is like running a business. And no business will survive if the owner does not know the numbers. If you do not know your revenue, how much your costs are, what your profits are, which your best-selling product is, and how much tax you owe, of course, you cannot run a successful business.
I think we can all agree on that. In trading, it works just like that too. As Ed Seykota, another successful trader, said, “Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
So, the question remains, how do you keep track of your trades and learn from them? The answer is simple: use a trading journal. As Jack Schwager, the author of the Market Wizards series, said, “Good records are essential to trading success. A trading diary provides valuable insights into past performance and serves as a framework for developing, testing, and refining trading ideas.”
Your trading journal should include the following information: entry and exit price, trade size, market conditions, emotions, and any other notes that may be relevant. By reviewing your trading journal regularly, you can identify patterns, improve your decision-making process, and ultimately become a more profitable trader.
Furthermore, keeping a trading journal allows you to evaluate your performance objectively. It’s easy to fall into the trap of thinking that you’re a great trader when you’re winning, but when you start losing, it’s important to be able to look back and see where you went wrong. As George Soros, one of the most successful investors of all time, said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” By recording your trades in a journal, you can see what you did right when you were making money and what you did wrong when you lost money.
Another benefit of keeping a trading journal is that it can help you manage your emotions. Trading can be a highly emotional activity, and it’s easy to let your emotions cloud your judgment. By writing down how you felt during each trade, you can start to identify patterns in your emotions and learn how to manage them better. As Mark Douglas, the author of “Trading in the Zone,” said, “The best traders have no ego. You have to swallow your pride and get out of the losses.”
It’s worth noting that while a trading journal is a useful tool, it’s not a magic bullet that will instantly make you a profitable trader. You still need to put in the time and effort to learn the markets and develop a trading strategy that works for you. As William Eckhardt, a successful commodities trader, said, “There’s no way to succeed in trading without learning how to lose.”
Michael Marcus, a successful trader and one of the subjects of the “Market Wizards” books, said, “Every trader has strengths and weakness. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.”
In conclusion, a trading journal is an essential tool for any trader who wants to improve their performance. By recording your trades and reviewing them regularly, you can identify your strengths and weaknesses, manage your emotions, and ultimately become a more profitable trader.