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How To: Keep a Trading Journal

Beginner's Guide to Online Trading 3

Or: Learn From Mistakes or PERISH.

Another simple yet key concept I was lucky to learn early was to keep a detailed trading journal. This is not only important for learning from your mistakes and triumphs, but it is a good habit to get into for keeping you sane at tax time.

Okay you’re in luck and we’ve done most of the work for you. There are two techniques I use for keeping a trade journal and both are really simple and effective. Combine them for maximum benefit.

Technique 1: Capital Gains Spreadsheet

As your accountant will likely remind you, you should keep track of every single trade you make, in actual dollars and cents. You can get yourself into some annoying situations not having this data quickly at your fingertips, and I personally do NOT rely on this stuff being accurate from my broker. Neither should you.


Capital Gains

This also doubles as a key part of your trading journal. Get familiar with it.

Adding trades will take you less than 3 seconds with our handy capital gains spreadsheet. Take a minute to get comfortable with it as this sheet will be a savior for analyzing trades, days, months, or even years after they happen. Another benefit about keeping track of trades this way is, come tax time, all of your capital gains / losses are compiled and ready to use. Your accountant will love you for it, or better yet, you won’t have to pay him $100/hr to sort though it for you.

Technique 2: Describe the Trade

Feel free to use your own favorite tool for taking notes but my preferred application is Evernote. It’s free and allows you to see your notes on iPhone/iPad, Android, and virtually every other device out there.

Evernote

Evernote for PC or Mac, is a solid tool for tracking specifics and notes concerning your trades.

So along with the spreadsheet to hammer in actual trades, use a notes application to keep track of the other important details like:

  • Describe the trade – including your stop loss price, price in/out, and anything else you feel is important.
  • Reasons why you made the trade, like sentiment, commodity prices, news bytes, etc. should be noted.
  • Links to key articles, forum posts, or press releases.
  • Ask questions, “What did I do correct in this trade?”, or “How did I fail so miserably, and why?”

Here’s an example from my own journal earlier this year:

=============================
MGM - March 18, 2011
=============================

The Trade:  This stock has bounced off support March 16.  
I'm looking to start a position for a short term hold or ride the stock until it hits 
another level of support and sell for a nice profit.

Entry:  $12.48
Stop:  $12.10
Exit: $14.90

Notes:
- Higher low, Lower high strategy I found at YouTube.  
- If I get stuck holding next quarter looks okay for MGM.
- Watch for Macau news pumping or deflating MGM.
- Very useful post on MGM for 2011 at Yahoo Finance.

Technique 3: Profit!

Okay there is no 3rd technique but used properly a trading journal is really going to give you an edge in your game, especially over time.

The most important thing I personally took away from keeping a journal was that I was able to easily zero in on why I made the trade in the first place. Often you will be side swiped with news or another situation that no longer makes your trade viable. Or worse, you’ll forget what got you so agitated to buy Acme Corp. to begin with. The journal will help avoid these costly mistakes.

You should also highlight or *star trades you are particularly proud of, or that worked out well for your portfolio. Spend off-market hours or weekends analyzing your past performance, and using the information to form new strategies. Above all, be sure to get answers for moves that cost you money.

Trader Mike has an older but still very relevant post about his own methods keeping a trading journal. His spreadsheet is quite a bit more detailed for the more advanced traders out there.

Hopefully these added tips will give you the confidence to go out and start trading, but if you’re still not ready then there’s always the option of using one of many new copy trading platforms where you can automatically execute the trades of more experienced traders.

For even more detail on setting up your journal take a look at this video from Your Trading Coach.

Don’t forget to subscribe to RSS to get the latest updates. Next up, we’ll talk about how to form a trading strategy or style. Ha-dou-ken!

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About Miles Evans

Miles is a pattern day trader from British Columbia, Canada, and has been actively seeking alpha since 1999. Outside of finance Miles is interested in web startups, programming, and the limitless wisdom of the crowd.

See all posts by Miles

  • Johnny Ancich

    What about dividends?  Do they only affect the ACB if they are used to buy more stock like in a DRIP?

  • http://www.stockrants.com Miles Evans

    Ahh great point Johnny and thanks for the reminder – was going to mention that in the article but missed it :/

    For DRIP what I do is just add another ‘buy’ order for the amount reinvested and set the commission to $0.  This works ok for DRIP.  For cash dividends I just pass them on as capital gains.

    DRIP (Dividend ReInvestment Plan) is for Canadian companies who allow for repurchasing of shares via your quarterly dividends.  Here’s an article both explaining DRIP and how to calculate ACB considering dividends: http://www.dripprimer.ca/calculate-acb

    Hope that helps :)

  • http://www.facebook.com/pavel.lyakhovsky Pavel Lyakhovsky

    I am using a handy app called Trading Diary on my iPad. It combines the versatility of Excel spreadsheet for numerical data and also lets me to paste charts right into the trade records: https://itunes.apple.com/app/tradingdiary/id601333323

  • invjournal

    Here is a trading journal and social investment website inspired by the same idea. You can log, analyze and share your trades.
    http://www.invjournal.com