Friday, March 06, 2015

Best Practices in Trading: Constructing an Effective Trading Journal

One of the challenges of any performance field is that peak performance requires immersion in an activity, but improving performance requires the ability to stand apart from that activity.  That is why elite performers always engage in several processes:  practice/preparation; real time performance; and reviews of performance to guide future practice and preparation.  That three-part cycle captures the essence of deliberate practice and ensures that we learn from experience on an ongoing basis.

Today's best practice is offered by reader Danny Shcharinsky, who emphasizes the role of journaling in working on oneself as a trader:

"Among the many practices and routines traders recommend following on a daily basis, there is one that stands out the most in my trading. This one has nothing to do with actual trading (read: "cutting losses" or "letting profits run"). This one has to do with YOU. That's right: Journaling. Good ol' pen-to-paper-write-your-heart-out type of journaling. While many successful market practitioners will always advise on how to do this, the one truth is that there is no right or wrong way to go about this. And I also don't mean the type of journaling where you get your trading platform to spit out a bunch of general statistics. While statistical analysis is certainly important to the improvement of your edge and intuition in your trading, I'm talking about the real hearty stuff - writing down your feelings about a particular trade, pattern, general market, even right down to what you had for breakfast. In a world where neuroscience has overwhelming evidence that our mind shapes our bodies and physical actions, do you think it may be a good idea to have a clear record of your thoughts? I would vote Yes. So go ahead, complain about the losses, get mad, angry, happy, excited, and inspired, but do it on paper, so you can move past it and grow.

Reviewing last night's journal entry first thing in the morning (prior to starting your trading day) would put you in the right frame of mind to do whatever it is that needs to be done. In addition, it would further crystallize concepts, ideas, and best actions that you have been practicing and thinking about for the past week, month, year. Repetition is the mother of Skill, right?  Taking all of the above into consideration, I would add that this has to be done and reviewed consistently.  Yes, everyday, or at least consistently enough that it makes a difference...Being consistent about your journaling will lead to a better and more clear flow in the way you feel and think.  You will also find out things about yourself that will allow you to change, improve, and grow in ways you have not imagined."

Danny points out that journals can be used in many ways:  to vent frustrations, prepare for the coming day, and crystallize one's longer-term market views.  Reviewing journals enables us to encounter our thoughts and experiences from a fresh perspective, as we now read what had previously been stuck in our heads.  This creates a kind of dialogue in which the journal helps us carry on a conversation between ourselves as traders and ourselves as trading coaches.  Through the journal we can observe ourselves, but also guide ourselves.  That is why I am a big fan of journals that contain observations (what we did right and wrong); goals for improvement (extending what we did right, correcting what we did wrong); and concrete plans for implementing that improvement.  

In short, journaling at its best is real time business planning.  It is a way of observing our trading business and managing it effectively.  If we are spending our time either doing things worth writing about or writing things worth doing, we are most likely to be productive and successful.

Further Reading:  The Power of Trading Journals