Day Trading Journal

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A day trading journal is the only part of your trading arsenal required to succeed at active trading.  Your journal contains each trading transaction and a brief summary of the trade.  Much like a traditional journal, a day trading journal takes you into a deep intrapersonal conversation that leads to the road of consistent profits.

How to Create a Day Trading Journal

The simplest method for creating a day trading journal is to set up a Microsoft Excel spreadsheet.  Within the spreadsheet you should at a minimum have the following columns grouped into two categories - monetary and methodology:

Monetary Metrics

Type of Trade: Long or Short, Date/Time, Symbol, Price, # of Shares, Profit, Commissions, Net Profit: Profit - Commissions, % Profit, Run-up/Drawdown: Displays max paper gain/loss, Day of the Week

Methodology

Did I follow all my rules?

What was done right in the trade?

What was done wrong in the trade?

When looking at your trading journal you can approach it from two angles.  The first angle is the monetary side and the second is how well you stuck to your strategy.

Monetary

The numerical breakdown of your trading activities is more than just numbers.  You will be able to quickly see if your trades are profitable, whether you make more money shorting or going long, and if using more money affects the way you trade.  One of the columns of most use is the run-up/drawdown as it shows you if you are giving back gains or are taking to large of a drawdown in any one trade.

Now that I have provided a quick overview I want to dive deeper into some of the key metrics that helped me turn things around.

#1- Day of the Week

It is important to document the day of the week you placed your trade. The obvious data will be which days you are the most profitable and when you can suffer the biggest losses.

I used to approach this exercise of assessing daily profits from the angle of the market is just less favorable for my trading style. This is a similar approach used by long-term investors when looking at major market cycles.

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In reality, what tracking this data exposed to me was that it had little to do with economic reports. My issues came down to a lack of money management throughout the week.

Mondays

Mondays would go one of two ways. Either I would start the week out really well, or I would show too much aggression which would lead to a big loss on the day.

If I started the week out super strong, this would lead to some sort of reckless behavior on Tuesday or Wednesday.

If I bombed on the first day, I would find some way to take it slow the remainder of the week in order to claw my way back to the green. This discovery lead me to slow it down on Monday and let the game come to me. I realized I was taking on too much risk because I felt like I had the rest of the week in front of me.

#2 - How Much Further Did the Stock Run?

This is another key data element. You need to track how far the stock has run after you exited the position. Regardless if you won or lost the trade, you need to know how far things could have run.

Why is this important?

You will begin to learn the full potential of your setup. What I observed is that my pullback trades on average travel 50% further than my breakout setups.

This did not lead me to totally abandon my breakout strategy but forced me to refine the patterns I trade in order to mimic the same trading results.

#3 - Did the Stock Break the Morning High

When you trade, your eyes will begin to lie to you and you will see patterns that just don't exist. For me the pattern was the pullback that bottoms in the 10 am to 10:30 am time frame, to then rally above the highs of the day.

The reason this pattern had the most appeal was the fact I could place a tight stop right above the low of the pullback, but I had three to 5 times the profit on the upside.

The only problem is that after I looked back at the results of my pullback trades, while they were profitable, only 15% of them exceeded the highs of the day by more than 2%.

Of course, this makes sense looking back on it because smart traders were buying with me and then selling on or near the retest of the daily high.

The point of this example, is that data may force you to fall out of love with a pattern or type of play that simply doesn't exist.

Day Trading Methodology

More importantly than the numbers, how well did you measure up to your trading methodology?  Did you follow all of your rules that give you your edge?  This is the real meat behind the day trading journal.

The trading journal is only as good as its input.  So, if you lie to yourself in your journal, your trades will not improve.  However, if you are truly honest about your shortcomings, you will begin to see a pattern in your trading.  Your flaws will be exposed and you will be able to consistently tame the beast of fear and greed which we all face on a daily basis.

Write Everything You Were Feeling

You need to write down everything you were thinking when you placed the trade. Oh and it doesn't stop there. You also need to document what you felt while in the trade.

What did you see in the tape? Did you find it hard to hold onto the position at any point in time? These are all of the key points you need to track.

Voice Recording

Now if you really want to step up your game you can try recording your voice. This allows you to not only see what you have written on paper, but it also allows you to hear your voice.

This will allow you to place context not only around the technicals but your emotional state.

The recording will prove useful once you start to go on a big run. You can then cycle back to a day where the market just beat you over the head. Take a moment and listen to your voice. Make sure you take the time to dissect the pain.

This simple activity will keep you grounded and focused.

Day Trading Journal Resource

If you want to purchase a trading journal there is a great resource you can u

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Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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  • This is good advice – I wholeheartedly agree that everyone should keep a trading journal. I found my journal to be the most valuable learning tool I have.

    I’m a touch biased :-), but it’s worth taking a look at Tradervue (http://www.tradervue.com).  It’s a new (free) web app that launched a couple of weeks ago, designed specifically for helping traders keep their trading journal, and automating some of the busy work that goes into it.  And once you have your data in there, you can see analysis of what’s working and what isn’t, and even share some of your trades with the community if you wish.

    Reply

  • This is good advice – I wholeheartedly agree that everyone should keep a trading journal. I found my journal to be the most valuable learning tool I have.

    I’m a touch biased :-), but it’s worth taking a look at Tradervue (http://www.tradervue.com).  It’s a new (free) web app that launched a couple of weeks ago, designed specifically for helping traders keep their trading journal, and automating some of the busy work that goes into it.  And once you have your data in there, you can see analysis of what’s working and what isn’t, and even share some of your trades with the community if you wish.

    Reply

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