Few people enjoy doing administrative tasks. It’s just human nature. Whatever your line of work, having to keep records is often seen an unavoidable chore. But in the work of online trading, there’s a unique aspect to the profession that makes record keeping an essential component of the job. Traders who keep accurate, timely journals have a better chance of earning a profit.
That’s mostly because by recording all your impressions, purchase prices, strategies, exit points, stop loss values, and other elements of each trade, you gradually improve. Many new traders are surprised at how valuable their early mistakes can be. But, if you don’t have any record of what you did or why you decided to enter a particular position, you won’t even have the chance to learn from your own errors. Here are some details to keep in mind.
Why Keep a Trading Journal?
There is no substitute for recording all the stats and comments that make up a standard trader’s notebook. Why keep one? As noted above, unless you possess a super-human memory, there’s no other way to know why you chose to buy a particular security, at what price you bought it, why you decided to exit the trade, and what your rationale was when getting in and out of the position.
The Right Way to Record Trades and Comments
Does keeping records of transactions have to be a tedious, time-consuming chore? Fortunately, it does not. That’s because the better trading platforms offer easy ways to add information to an electronic journal. For example, the Metatrader 4 platform has a tab dedicated to the job, called Journal. Platforms that offer journaling capability automatically fill in the pertinent information when you buy or sell, like the time, date, purchase price, and number of shares or other units. Some have space for you to type in short comments about your state of mind, motivation, reasoning, etc.
When adding comments, keep the wording short and to the point. It’s not a diary. A good example of a helpful entry with all the essential information might be: Bought 20 shares ABC for $20/sh because news reports stated that tomorrow’s earnings report is expected to be positive.
Other Benefits
There are more benefits to keeping detailed records besides learning from your mistakes. For instance, when the time comes to file your annual or quarterly taxes, the journal can serve as a verification of disputed trades. If your broker sends you a statement that says you bought 2,000 shares of ABC Corporation’s stock on a given date, check your written records in the journal’s pages to see whether the transaction matches what your broker says. Even in the digital age, brokerage companies make mistakes and report higher or lower amounts on tax documents. If you have a written record on your platform’s journaltab or on some other type of record, you can easily dispute the broker and correct the statement before filing your taxes.
