Is it possible to improve and gain more experience in a shorter period of time? How do you know what requires fine tuning? Keep a trading journal.
How often should you review your trading performance? Once a quarter is too infrequent for a quick feedback. Review your trading performance once a week if you trade a couple of times every week or once a month if you trade just a couple of times a month.
You will uncover the effectiveness of your strategy and strength of your psychology.
Trading For A Living reveals what to expect from trading.
Here are 6 components you must include in your trading journal for improved results.
#1 Reasons For Entry
Did you enter the trade because that stock is in the headlines or your friends were talking about it?
What were your guidelines for entry? Did you follow them?
Example: You identified a flag pattern and entered on the breakout.
#2 Dates & Duration Of Trade
This will help you notice patterns such as the average holding period of your most successful trade. If you are constantly hitting your profit target within a week, then it is a red flag if you are still in a trade for 2 weeks. It would be better to cut losses short and move onto other candidates.
With this data, you can also identify poor trading months. You may want to tweak your strategy or even stay out in those months, conserving your capital. Go for a short holiday to decompress and enjoy life!
Your money will be working harder for you and you will leave less potential profit on the table.
#3 Entry Price
Knowing your entry price allows you to calculate your profit, loss, risk and reward ratio etc.
#4 Stop Loss
This helps to calculate your initial and subsequent risk and reward ratio especially if you employ a manual trailing stop as your stock heads in your desired direction.
Discover the art and science on placing your stop loss.
#5 Target Profit
This is crucial as your profit target levels and actual profit tell you many hidden things.
Are you overly optimistic or too conservative at setting your target profit levels? Should you increase or decrease your target profit level in the current market condition?
This section helps set the expectation of profits and risks. If you know that your profit target level has been too ambitious for the past few weeks, it is time to reduce your trading size or even refrain from taking such trades.
Example of recording your trading journal on the chart
Last but not least, include a screenshot of the chart for a picture speaks a thousand words. You can also record Points 1 to 5 on the chart for easy reference as shown in the chart above.
Note down the size and looks of the candlesticks before and after entry. Do this for both your winning and losing trades. Learn to recognize the behavior of the stocks you have.
Trading is a business. When feedback is absent, improvements are kept out of sight. Feel free to add a component or 2 more. However, the trick is to keep it to the minimum and you will be more motivated to complete it.
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