Last week the following question was asked of me about trading journals:
This expectancy stuff is very intriguing. I plan to take advantage of that concept immediately. I have been keeping a log of every trade I have done, but I have not kept track of what I now wish I had (overall market sentiment, etc…). Do you have a specific list of recommended things to keep in a trading log, or better yet, do you know of any trading log software?
I’ll answer the last part of that question first. I couldn’t find any (reasonably priced) software after doing some searches on Google and in the EliteTrader forums. I actually started out using a generic journaling software package but after a week or so I realized that a spreadsheet would be a much better way to go. One problem with using a package like that is that I could only see the details of one trade at a time. The other big issue was that it didn’t allow me to generate statistics.
2014 Update: Finally a web based trade logger with full stats and automatic trade import. Head over to StockTradingToGo.
A spreadsheet solves both of those problems. And after seeing the example spreadsheets in Van K. Tharp’s ‘Financial Freedom Through Electronic Day Trading‘ it became very clear that a spreadsheet was the way to go. The journal that Tharp recommends calculates the (oh-so-important) expectancy of your system. It also displays your win %, which is a number that I’m always interested to see. Tharp also discusses other ideas for things a trader may want to write down, from things like market sentiment and indicator values to things like room temperature and what was one your mind at the time.
Here are the columns in my spreadsheet (you may download my spreadsheet if you wish):
- Ticker Symbol
- Bought (Price)
- Sold (Price)
- Initial Risk ($ amount of my loss if my initial stop gets hit)
- R Multiple (P&L divided by Initial Risk)
- Win %
- Comments (free-form text)
- $ at Work
- % Gain/Loss
- Initial % Risk
- Expectancy (this cell is up at the top of the page and is calculated across all of my trades)
- Total P&L (another cell at the top of the page)
One of the nice things about using a spreadsheet is the flexibility and extensibility it provides. For example, my journal originally didn’t contain the last three columns listed above. But I was curious about those numbers so I just popped them in there. I’m sure I’ll be adding more columns to the journal as time goes by. Here are some other potential things to track which were suggested in “Tools and Tactics for the Master DayTrader“:
- Style of Trade — swing or day trade, etc
- Reason for Entry
- Initial Stop Price
- Objective – (I had this field in my first journal and it drove me nuts. I have major issues with trying to attach price objectives to trades mainly b/c I don’t want to cut them short…)
- Sell Date (should be ‘Exit’ date, sell date assumes all of your trades were longs)
- Reason for sell (Exit!)
- Error 1
- Error 2
- Error 3
Hopefully that will give you some good ideas about what to put in your journal. One thing that I found is that just the exercise of keeping the journal updated keeps me on my toes. Whenever I find myself thinking about taking a flyer on a trade that I know I shouldn’t, I ask myself how I’m going to explain my entry in my journal. That’s usually enough to keep me out of that questionable trade. Another nice thing is tracking the R multiples. You know that if you start seeing R multiples much less than -1.0 that you’re really messing up. There’s no justifiable reason for letting the stocks fall through your initial stop. It also becomes exceedingly clear how important it is to keep those losses small.
P.S. If anybody has other ideas about what to put in a journal or knows of a good journal software package please leave a comment.
P.P.S. I forgot to mention that I also have additional sheets in my journal ‘workbook’ (excel terminology). One page I call ‘daily recaps’ is just my P&L for the day with whatever comments I feel necessary for that day. The other page is identical except the columns apply to the entire week.