In our last lesson we began our discussion on how successful traders leverage trading journals in order to learn from their past mistakes and successes. In this lesson we are going to wrap up our discussion on trading journals with a look at what to look for when reviewing your trades.
Simply writing the days activity down in your trading journal is the first step. The next and equally important step is to review your journal on a regular basis to see what is working and what is not. This way you can leverage your journal to help you improve in areas where you are weak and make sure you continue to leverage your strengths where you are strong.
There is a great article from Brett Steenbarger at Traderfeed.com which addresses some of the major things that traders should analyze when reviewing their trading journal. In this article Dr. Steenbarger says:
• Number of long and short trades – I correlate this to the trend condition of the market to see if I’m trading with the current or against it; if I’m trading in a one-sided way in a range-bound market. The number of trades also tells me if I’m overtrading.
• Number of winning and losing trades – When I’m trading well, I have more winning trades than losers by a reasonably healthy margin. When the ratio dips for more than a short time period, I need to re-evaluate my trading and my trading strategies.
• Time holding trades – I’m a short-term trader, and I tend to have a relatively narrow time band in which I hold trades. Moving beyond that band tells me I’m either cutting trades short or going for home runs—and neither of those have worked for me in the past.
• Time holding losing trades versus winners – It is very hard to make money over time by holding losers. Eventually, the size of the losers becomes greater than the winners so that even a trader who has more winning trades than losers can end up in the red.
• Profit/Loss broken down by long and short trades and broken down by market condition. This tells me if I’m trading ranges better than breakout movements; whether I’m doing better on the long side or the short side. If my performance is significantly worse in one mode than another, I start to examine my trading for needed improvements.
I would add to this list average profit on profitable trades vs. average loss on unprofitable trades and largest drawdown or loss the account suffered before returning to profitably.
That completes this lesson, also wraps up our course on the basics of trading. In our next lesson we are going to begin a new course which covers the basics of Forex Trading so we hope to see you in that lesson.