Friday, August 21, 2009

Keeping Journal


“If you don't know where you are going, you will probably end up somewhere else.”

Laurence J. Peter
US educator & writer (1919 - 1988)

If one wants to be good trader and if one wants to make it in trading field, then one should keep his/hers trading journal. This is second step for every developing trader (as well as for established traders) and trading journal is to be created immediately after trading system with positive expectancy is in place.

I would suggest that one should have not only one, but TWO trading journals. First one should be the journal where one records all trading metrics - position, sizing, profit/loss and any other metrics that one can think of. Second journal should be the journal in which one will record one’s thinking, emotional state, etc. That second journal should carry honest information on how did one feel when trade was entered; how did one feel during the trade; what were the matters of discipline in terms of closing trade and disobeying trading rules; and anything that comes to your that will help you maintain your positive thoughts/actions in place, while providing feedback if something (that is not that good) should be corrected.

Both of those journals should be reviewed often - how often it does depend on one’s trading strategy: At lease once a day if one is intraday trader; every week if one is swing trader or once a month if one keeps his/hers positions over longer periods of time.

Please note that attached picture represents what I’ve came to after six years of trading. Shown example is trading journal in which trading metrics are recorded and please fell free to change what you want, but keep in mind that with more metrics you have more details to focus on in order to fine-tune your trading. Also, please feel free to send me e-mail and I will be happy to share this form of trading journal that I’ve designed in Excel 2007, which has some new features.

Top right corner shows T and F formulas, which are, as statistical formulas, very important for your trading.

For your system to be good, T (field BQ7) must be higher than 1.6. Just be aware that T formula is function of the number of trades, so more trades you have better you can judge your trading system.

F (BQ8) formula is something that is called Kelly formula and determines how much money (per contract traded) you need in your account to avoid risk of ruin. For example, if you have R100.000 on the start of the month you can trade R100.000/(R15.000+R13.661) and that is exactly 3.79 contracts. That number is shown in filed BQ43 .

Most of the fields are updating automatically so you should just put new trade in and check them from time.

In order to read full paper on T and F formulas, please visit:

http://www.verticalsolutions.com/notes/intro_to_testing.html
http://www.verticalsolutions.com/notes/simple_tools.html

The second journal is as important as the first one, but for that journal one should use blank peace of paper and keep his/hers thoughts – it is amazing what one is going to find there after few months of honest recordings.

Trade with trend.



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