Keeping a journal or trade log is as big a hassle as doing taxes. But it is one of the most important and productive disciplines a trader can adhere to. It not only helps you accurately report taxes but also improves your trading. In recording each transaction, you assess why you made a trade, when you did it and under what circumstances. It forces you to keep track of your emotions before, during and after a trade. Reviewing each trade will help you see what you’re doing well and what needs improvement. It can stop you from making emotional trading decisions.
“For full-time traders, trading is a business. The journal is a business plan,” says trading psychologist Brett N. Steenbarger, Ph.D., author of The Psychology of Trading (Wiley; January, 2003). “The right plan, executed faithfully, can be the difference between success and failure in any endeavor.”
Keeping a trade log takes a lot of time and it should be considered a part of your daily routine just like looking at charts and planning trades. You could very well spend more time journaling than anything else in the same way chefs spend most their time preparing rather than cooking.
You might think you can remember your trades. Unfortunately memories are subjective and selective. What you remember may not actually be what happened. It’s really hard to remember everything you did or what you were thinking several months down the road.
Humans are biased toward remembering their victories and shunning their mistakes. Thus your selective memory makes it harder to change your behavior. If you don’t record your mistakes, you will very likely to repeat them.
Steenbarger recommends recording observations about yourself as well as the market. Print out intraday charts of the stocks when you buy and sell. Note the the patterns you want to look out for in the future. This will train you to see patterns and setups that you want to trade.
Some guidelines and questions to ask yourself in your log:
A good trading log will raise self awareness about your good and bad habits. Do you have a tendency to jump the gun? Do you have a habit of holding losers too long? Or selling winners too early for fear of losing your profits? Are you over trading? Do you over react after a loss and want to revenge trade?
Steenbarger recommends observing your best trades to pinpoint what you’re doing when you make money. Create a list of those successful elements and turn those into habits. Spell out specific steps you will take to improve. You must be as specific as possible.
Instead of saying “I will cut my losses short,” write down the specific steps you will take to cut your losses short such setting stop losses and what you’ll do to manage your emotions. For example: “I will have a predetermined stop on every trade and sell no matter if it hits that price, even if it I think it will rebound after I sell.”
Use the log to prepare you for the next trading day. Aside from writing down what happened in the past, you also need to write a plan of action for the future based on what you are seeing in the market. Review what you did each day to see if you reached your goals.
To assess your performance, Steenbarger recommends logging:
Good traders should be holding their winning trades longer than their losing trades. Holding your losers too long can wipe out all the winners even if you have a high win-to-loss ratio. Over time if you see that your performance is significantly better when applying one strategy over another, you can analyze what needs improvement.
You can use TradeLog as a trading journal as well as for tax prep. TradeLog has a “notes” feature that lets you add a notes column to your dashboard. In this field, you can make notes about trades that could generate a future wash sale, trades that have been manually adjusted for stock splits, or whatever else.
A comprehensive trade Performance report allows you to track such metrics as total commissions, average profit/loss per trade and per share, largest profit/loss, average shares per trade. All of this is broken down by winning and losing trades. The report can also be run on an individual account, across all accounts, for a single instrument class like stocks, options or futures, or by an individual ticker symbol, or group of symbols.
You can create chart reports to analyze performance and profitability by time of day, as well as comparing profit/loss across different ticker symbols. For example you can easily compare your profit/loss for Apple and Netflix to see which stock traded has been more profitable.
The platform further allows you to sort grid views and generate reports based on a given trade strategy, date range, or other filter. TradeLog provides a default list of common strategies and also lets you to enter your own strategies.
Tradelog tracks all your trades, helping you to get a handle on your trading performance and trading methods and strategies.
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.