Trading Journal: The Must Have Tool For A Trader-From A Case Study Perspective

A very close friend of mine who is also a day trader shared some very interesting insights about his trading career journey. I am presenting his story for the readers to go through. I have personified my friend in the article as if he is writing the post.

The all in one most indispensable tool which fortunately I was able to find was the most potent one and that is my trading journal, in the form of a trading journal spreadsheet which I started maintaining after very stressful initial years. These initial years before the inclusion of trading journal in my arsenal were the most scrambling years of my trading profession. Now not even a single day I can think about going for live trading without this vital resource.

My Trading life before embracing Stock Trading Journal

I started my career as a day trader almost in an identically similar fashion to the well-known stories of many struggling day traders. I treaded into the trading arena with a satisfactory capital which could be intelligently utilized for achieving a successful trading career. My story started with lady luck on my side for a couple of months. I invested in some companies and within few days of my investment the result for general elections to Lok Sabha [Indian Parliament] was out leading to an upper circuit at National Stock Exchange and after that everyone knows that the stocks were floating in the skies.

My capital grew within a short period of time and I was filled with an inner feeling of a champion. This took the fear out of me and I was roaring to go into the intraday trading arena without realizing the formidable reality that day trading is one of the most difficult professions on earth.

Sooner than later the reality dawned on me and I was consistently making faulty decisions in taking the trades. It was just a matter of time that my capital depleted and I was wondering how nothing is going right for me. I stopped intraday trading for a while, started searching for trading systems, studied technical analysis from various perspectives, chalked out a couple of intraday trading strategies and replenished my capital account for the second innings.

I started trading again, this time with improved results but some very visible deficiencies. By and large either I won the trade or lost it I was reeling under the psych of frustration, failure and low self-esteem. The reason behind this was that I knew the results ought to be much better but I was unable to perform satisfactorily.

I read a quote which goes like “SURVIVAL is better than failure and it should be your first goal as a newbie trader.”

These circumstances gave me the clue that there is something very important which I am missing. Fortunately with all my emotions going haywire I was sure that it has something to do with trading psychology and my search for getting an answer began from here.

Journey towards the Enlightenment: In other words preparing the trading journal

I started searching for resources very carefully and thoughtfully so that I don’t waste a lot of time on unnecessary chores. As I was clear about the trading psychology angle I was determined to find something very authentic related to that.

Fortunately the good thing happened and I was able to get hands on a book namely Enhancing Trader Performance - Proven Strategies from the Cutting Edge of Trading Psychology written by Dr Brett Steenbarger. This book brought a revolution in my thoughts.

The blog written by Dr. Brett Steenbarger which is Trader Feed is also a very good resource for enhancing ones trading knowledge.

As the saying goes that practice makes perfect, Dr Brett Steenbarger improved on that and said that it is perfect practice that makes perfect. Dr Steenbarger mentions about K. Anders Ericsson, perhaps the most prolific researcher in the field of performance.

K. Anders Ericsson gives an example of young Michael Jordan who doesn’t accept defeat lightly, and he uses losses to drive himself forward, this is the characteristic of elite performers. For this very quality Ericsson has coined the term “deliberate practice” and assigned it as the cornerstone of expertise because it multiplies experience.

The idea behind this deliberate practice in perspective of trading is that a trader should recognize the flaw in his strategy and make a deliberation to sideline that weakness forever. Repeat this for each and every flaw in the trading strategy until and unless one gets over all of them.

So the best idea is:

• What you determine that works for you keep doing it.
• What doesn’t work for you modify it or at the most eliminate it.

For a Trader to achieve this much coveted “deliberate practice”, the weapon is his own trading journal. The importance of trading journal in the words of various experts can be summarized in their own quotations related to trading.

“The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes.” – Jesse Livermore

 “I happen to be quite a fan of trading journals; indeed, I made journals a mandatory part of the training program at a Chicago-based proprietary trading firm.” – Brett Steenbarger

“Make a trading journal your first trading habit. It will become the key to all your good trades in the future.” – Investopedia

“Your best trading book is your own trading book”- Adam H Grimes

 The foremost attribute which should be present in a trader is discipline. It is not necessary that a person who is disciplined in normal life can also be a disciplined trader. For being a disciplined trader some special efforts are required which are very well underscored by the following quotation:

“A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline.” - Babypips

After going through the book by Dr. Brett Steenbarger and some other resources I was fully convinced that my trading profession was short of the most potent tool and that is the trading journal.

Why trading journal is the most potent tool

I started building up my trading journal in a raw manner. The initial steps were to jot down the trades in handwriting on a paper note book. This activity helped but it was really time consuming. So I thought of taking help of the much useful Excel spreadsheet to bring up a trading journal spreadsheet.

Fortunately as I was preparing it, I got a trading journal spreadsheet  shared by Trader Mike at his blog.

The statistical part of the trading journal spreadsheet comprises of the following columns:

• Initial Risk: The initial amount at risk while setting up the initial stop.
• Net Profit: This is the total profit minus losses and other transaction costs.
• Win percentage: The total number of wins divided by the total number of trades.
• Loss percentage: The total number of losses divided by the total number of trades.
• R Multiple: Profit & Loss divided by initial risk. R is the initial risk. This will tell how much one is making in excess of the initial risk.
• Average trade gain: This is calculated by dividing the total profits from all the winning trades divided by the total number of winning trades.
• Average trade loss: This is calculated by dividing the total losses from all the losing trades divided by the total number of losing trades.
• Payoff ratio per trade: Calculated as the average winning trade minus the average losing trade.
• Profit/Loss of Long only or Short only trades: This tells about what kind of bias one has. It can help in modifying the decision making pattern.
• Largest number of consecutive losses:  This will help in identifying the maximum drawdown situations. This determines the extent to which one had to face losses sequentially.
• Average number of consecutive losses: This will convey an overall picture of the performance of losing trades in terms of drawdown.

There are opportunities of adding more columns as per ones analytical expectations but the ones above which I use tell the whole story in short. Any added information can act as a bonus.

If we go into the details of each column separately then each aspect is very wide in scope and can be studied thoroughly for deeper understanding.

In addition to the columns in the spreadsheet I also added a text box for noting down all the points which influenced my decision of taking the trade in the first place and then exiting the trade on the second.

This was necessary as only statistical data will be of little use if I don’t include the emotional factor in making my decisions after all a trader is controlled by the flow of emotions as per the circumstances prevailing during the trade.

The trading journal was missing one more thing and that was the visualization factor which was very fairly supplemented by the screenshots of the charts. I take the screenshots covering the time period of the trade. The entry and exit points are marked on the chart with few technical details regarding the setup and the idea behind entering & exiting the trade. This also acts like the highlights of the live trading session attended at an earlier point of time.

Images speak better than words and I find this practice very useful of keeping the screenshots. I give the name to the images of the screenshots similar to the Serial number and date of the trade in the excel sheet for ease in future reference.

Why did maintaining trading journal regularly helped me?

Now after the tool was in full shape it was on me to fully exploit the tool for performance and deliberate practice. I made a set of questions for myself which were to be answered by me for each and every trade that I executed.

The questions more or less are like this:

• Can I identify the patterns which work for me?
• Can I identify those patterns which do not work me?
• Am I setting up correct stop limits and profit target? The stop should not be too far and neither too close, so what should be the ideal placement?
• How frequently do I trespass my set up rules and how should this be overcome?
• What emotions led me to take the trade or exit the trade?
• Which events in the macroeconomic aspects had an effect on my trading possibilities?
• In what kind of market conditions I feel more comfortable in remaining a trade?
• How did I react to the sudden news events which brought volatility factor in the ongoing trade?
• Which trading sessions of the day I feel more comfortable and which are the ones which make me stand on the toes?
• How many times I missed trades on a valid setup and what were the factors which played a role in such a scenario?

When I was able to answer these questions in an honest way day after day, I felt a lot more confident in taking the trading decisions. This task helped me to be right more often and thus increasing the odds in my favour. I became more proficient sticking to the trading plan which was not the case in the earlier days of my trading.

My trading journal has given me the opportunity to optimize my orders with correct percentages of stop loss limits and profit target .Now after the proficient use of the trading journal tool I am able to bet bigger on my intraday trading strategies. My efficiency has improved a lot after the use of trading journal as an analysis tool because it has aided me in following the much popular saying in the trading circles that let your profits run and cut your losses short.

My trading journal has given me a lot of respite from the violent emotions which I used to experience every other single trading day .I cannot think of going into a trade the next day without having completed all the details of the trading of the previous day and the expected trading environment for the next day in my trading journal.

Consistent wielding of the trading journal will help to track the performance of the trading strategies and setups in the ever-changing dynamic market environment. We have to change swiftly in tandem to the market so as not to be left behind in the flow of dynamism.

There are few resources which provide online trading journal. You can give it a name as forex trading journal, stock trading journal or trading journal software but the main purpose is to track your performance as a trader.

A free online trading journal website is StockTrader

There is another free one which I am updating Trade Bench

There are some other names in the field of trading journal software and online trading journal which are as follows:

StockTickr

EdgeWonk

Tradervue

Although the above three are paid resources for the users, Stock Tickr has some free basic functionalities, Tradevue gives a plan which is free for 100 trades and Edge Wonk has free trial period. .

No matter what tool one decides to use for improvement,be it a trading journal spreadsheet,online trading journal or trading journal software, the foremost task must be to use it in the most exhaustive manner.

This could aptly be supplemented by the quote from Dr. Steenbarger's book:

"I’m a big believer in starting with high standards and raising them. We make progress only when we push ourselves to the highest level." — Dan Gable

Psychological strength is a potent weapon for a Trader

Don Hays “ Emotions are your worst enemy in the stock market.”

Last time when you entered a trade, what were you going through? This question is a million dollar question for a trader. The reason behind this question is one and only one and that is psychology. Psychology plays a pivotal role in the total involvement of a trader in his/her trades. Trades can be won or lost on account of wrong psychological management in spite of the fact that the trade initiated was based on strong fundamental and technical support.

Do you feel the ecstasy when the trade is going your way and feel dejected when it is not. The more strength these emotions have in you the more are the chances of the trades not performing well. The targets of trading are to extend the profits and to cut the losses, however a weak psychological support tends to do the opposite.

The most potent tool to handle the psychological situations pertaining to trading highs & lows which I found to be very helpful is the trading journal.

A trader has to be proficient both in psychological and money management. A complimentary approach for the management of money and psychology will be the ultimate winning weapon in stock market trading. A trader who knows the intricacies of mass psychology will surely fare better while taking decisions in tandem with the markets. The psychology of a trader should help him/her to keep the eyes open and make decisions seeing the reality of how the markets will behave and what turns are in the offing.

The Whipsaw Song by Ed Seykota- Trading Strategies in a Musical Outfit

You would love to hear this song. You can really improve your trading strategies listening to the song and following the simple rules included in the lyrics. Watch the video below & Enjoy

You get a whip and I get a saw, honey
You get a whip and I get a saw, babe
You get a whip and I get a saw
One good trend pays for 'em all.
Honey, trader, ba-by mine.
Banjo (Ride Your Winners):
What do we do when we catch a trend, honey … etc.
We ride that trend right to the end.
Mandolin (Cut Your Losses):
What do we do when we show a loss, honey … etc.
We give that dag-gone loss a toss.
Fiddle (Manage Your Risk):
How do we know when our risk is right, honey … etc.
We make a lot of money and we sleep at night.
Guitar (Use Stops):
What do we do when the price breaks through, honey … etc.
Our stops are in so there's nothing to do.
Bass (Stick to the System):
What do we do when a draw down comes, honey
What do we do when it gets real big, babe
What do we do when it’s even bigger …
We stick to the plan and pull the trigger.
Banjo (File the News):
What do we do with a hot news flash, honey … etc.
We stash that flash right in the trash.

Candlestick Patterns- A Ready Reference Image Guide

I would like to share with the readers an Image reference guide of the most potent Candlestick Patterns. The Candlestick patterns if used correctly in the context of the ongoing market conditions can be very helpful in timing the entry and exits in a trade. With more screen time looking at the charts a trader tends to identify the patterns of the candlesticks quickly. However in the beginning if a trader finds problem in recollecting the patterns at the trading time then this image could come in handy for using as a ready reckoner.

Click On Image for an Enlarged View

Trading Scans-52 Week New High & 52 Week New Low

52 Week New High & 52 Week New Low

The stocks making new 52 Week Highs & new 52 Week Lows are very popular kind of scans
adopted by seasoned investors.

The idea behind New High parameter is that if the stock is making a new 52 New High , it is showing
tremendous strength on its part . This new high being created by the stock is showing new buying interest in the stock and more & more people are taking interest in owning this stock. Getting into such stock can be profitable. However this is not a writing in the stone that if a stock has made a new 52 week high it is surely going to go north forever.

52 Week new low on the other hand is a sure way of recognizing a stock which is getting weaker
in demand by the investors. People are getting rid of the stock because of some fundamental flaw
in the working of the company and thus declining stock price. This let people keep the stock at radar
to remain far from investing in such stock at such weaker times of that stock.

52 Week New Highs & 52 Week New Lows are a powerful indicator of the strength or weakness of
the stock and largely gives a good idea of when to go long in a stock or when to remain away from it.
These are longer term scans and meant for positional investors.

Also Read :

Trading Scan: Price Crossing Above or Below 200 Day Moving Average

Trading Scan: Price Crossing Above or Below 200 Day Moving Average

This is among the most popular way to scan the direction of the
trend for the stock for a longer period of time.

Mostly the institutions look for the stocks which have very recently
crossed the 200 Day Moving Average in either direction.

This makes 200 Day moving average a very credible point of decision
making as it implies the strength or weakness of the stock.

Once the stock crosses above or below its 200 Day moving average it tends
to remain in that direction for a longer period of time thus making the entry
for the trader easier to confirm.

So if you are a traditional sort of investor this particular scan can come in quite
handy for you to time your entries in a stock to turn into profitable trades.

How To Scan Stocks On The Basis Of Some Set Parameters

When there is a requirement of tradeable opportunities in various stocks
listed on a stock exchange the difficult question which arises in the mind
of the trader is that what should be the criteria to find stocks which could
be potential winners for them.

Entry into a stock can really become a headache if it is not executed at the
right time & the right price. Sometimes it may happen that a stock is ready for
a breakdown  but you may after listening a good news about that particular stock
go long in that stock just to find in few days that the stock has crashed 15 -20 %
from your entry price. The reason is simple that your timing of entry was not based
on a technical aspect and it went wrong drastically.

There are certain types of scans which may help a lot an investor or a trader to time
good entries in a stock. Many seasoned traders are good at making out these scans with
the help of their stock tracking skills based on certain parameters which they know are
going to help in decion making about which stock to choose to make an entry into.

Some Stock scans are meant for positional or swing trading and some scans are meant for
scanning stocks on an intraday basis. For both kind of scans we need to have access to
stock data.

For stock scans done on EOD [End Of Day] data helps in making decisions
for positional or swing trading.

Similarly scans done on Real Time Data of 1 min. , 5 min., 15 min., 30 min., hourly
time frames help in making entries in stocks for intraday trading and a shorter time frame.

There are certain softwares which aid in scanning stocks after giving input of parameters
for scanning stocks . Some famous softwares being Amibroker , Metastock etc. In these
softwares we can get both EOD & Real Time data and thus able to do both type of scans.

There are also some websites which help in scanning stocks both on daily time frames
and Intraday Time frames.

I am going to discuss some popular scans which are used by traders of all levels for
exploring good opportunities in making profitable entries into stocks. These are the
set of parameters on which the stocks are scanned and eliminated for making decisions
to make profitable entries.

Here we go with the most popular among investors.

Related Posts:

52 Week New High & 52 Week New Low
Price Crossing Above and Below 200 Day Moving Average

US Dollar Index: Important for Currency Traders

Traders are much familiar with Indexes. To name some very familiar indexes we may list DOW JONES [DJIA] (US), NASDAQ (US), NIFTY (INDIA), BSE SENSEX (INDIA), FTSE (UK), SHANGHAI COMPOSITE (CHINA).

Index or Indices represent the weighted average value of the top listed securities and stocks in an exchange. These top listed stocks are kind of a basket of stocks whose collective movements are represented in a broader way through the Indices. More or less the direction of all the stocks will be reflected in the movement of the index whether up or down.  Each stock will have its own weight in the average according to its market capitalisation.

In the same manner the US Dollar has its Index known as the USD Index [USDX]. US Dollar is a very important currency at a global level and therefore an index to represent US Dollar against other currencies of the world an index was needed. So it was created in 1973.

The U.S. Dollar Index consists of a basket of six foreign currencies. They are the:

• Euro (EUR)
• Yen (JPY)
• Pound (GBP)
• Canadian dollar (CAD)
• Krona (SEK)
• Franc (CHF) 

Euro is used in 16 European countries who belong to the European Union. Therefore these six currencies in total represent 21 countries.

The movement of US Dollar Index will show the current scenario in relation to the demand and supply of US Dollars at global level. Though these 6 currencies are the main currencies but US Dollar Index is tracked by many other major currencies of the world. Therefore from a trading point of view in the currencies market the reading of USDX can play a very important role in decision making to gauge the strength of the US Dollar vis-à-vis other currencies.

"Earn Easy Money By Trading " - It Is A Myth

Feroz Ahmed Khan "Trading Stocks is simple mathematics 2+2= 4 but our greed makes it 5 and our panic makes it 3"

Elder Alexander says “Are traders born or made? There is no simple answer. Both aptitude and learning are important, but in different proportions for different people. At one extreme are born geniuses who require very little learning. At the other are gamblers and dunces, whom no classes are likely to help. The rest of us are in the middle of the curve, with some aptitude but in need of education.”

Just like people who choose various professions need to undergo training before getting into the practical aspect of the profession in the same way traders also need to be trained. This can be understood in this way that a Doctor will not perform an operation outright before a proper training, or an Engineer will not design before practical training or a lawyer would not straightaway stand for a hearing without comprehending the laws through case studies.

Similarly a trader cannot be successful by jumping straightaway into the market without analysing the risk potential involved in trading and getting considerable hold of the behaviour of the market. A trader has to be aware that lot of time has to be invested in paper trading before full fledged involvement in live trading.
A better training also involves on part of trader to overcome emotions of fear and greed. Both fear and greed emotions are detrimental to successful trading. Such is the impact of these emotions that many a traders have to either give up trading wholly or have to take a backseat for a long period of time in process of learning to take control over such emotions.

Trading is not an earn easy money kind of short cut, rather it is one of the most challenging practical business. Lot of effort is needed on part of a trader to become a disciplined trader and the money earned through trading can be easily said as hard earned money.

Research Of Stocks Is Imminent

 Jim Cramer "As long as you enjoy investing, you'll be willing to do the homework and stay in the game. That's why I try to make the show so entertaining, because if you aren't interested, you'll either miss the opportunity to make money in the market or not pay enough attention and end up losing your shirt."

Think about your attitude when you were planning to buy a new Cellphone or a Computer or a LCD TV. Most people first research a lot about the various brands of products available in the market. They keenly scrutinize the features, performance level, popularity among others,value for money etc, before finalizing the product for them. This shows that people give a lot of time into research as they want to make the best use of the money they are going to spend

However it is has been largely noticed in case of stock market that most of the investors just do not mind investing their money without enough research done on the stock they are going to deal with. Each stock is said to have a personality of its own . This is largely dependent on many factors. Investing into a stock is just like investing into a business. Stock belongs to a company and its personality is quite dependent on the nature of performance of that particular company. The track record of the company through the Balance Sheet , Profit & Loss Account , Annual Results and Quarterly earnings reports, number of investors , proprietor's holding in the company etc., can broadly give a clear picture of the stock's performance in the past and its future expectations.  

A thorough research about the stock with various technical and fundamental parameters put into use can give a good idea that whether that investment will be a good deal for the investor or not. Merely enthused by some promising article , rumour or recommendation and investing into a stock may give drastic results. Equity investing without research is just like playing a game in a casino which merely is a misuse of money.

Same kind of research based analysis is valid in the case of trading of stocks in short term periods as is needed for long term investing . Some stocks are more likely to give good opportunities of trading in comparison to other stocks. Before taking a plunge into trading a trader must give enough time for research of various stocks which will be best suited for his/her style of trading. Trader needs to exploit the movement of the stocks which give the opportunity to trade and this movement is largely dependent on the personality of the stock. So first target of trader is to find appropriate stocks to trade and then next step will be to trade in them.

Soul of Trade Catcher

Welcome to Trade Catcher. The soul behind name of the Blog is to find ways to catch the profitable trades in the Share market equity trading . Trading is all about the timing in the market and this is where the catching of the trade, which can turn profitable, is most important for a trader . Patience is the key for a successful trader and this is what is to be mastered for a satisfactory performance in equity trading. We'll begin the journey of learning trading techniques gradually but consistently. Give your best to become a successful Trade Catcher.