Thursday, March 13, 2008

Using Trading Journals to Improve Trading Performance

I've begun working with a small group of individual traders at proprietary trading firms using daily online journals as a foundation for our work. In this post, I'll describe one useful format for such journals and how they can useful for self-improvement as well.

We know from research in psychology that goal-settting is an effective tool for performance development. Goals should be:

1) Challenging, but attainable;
2) Limited in number
3) Accompanied by regular feedback to cement learning and tailor new goals.

A journal format that I like translates each goal into a "subject" in a "report card". For frequent traders (i.e., those who trade intraday and/or every day), a single grade at the end of the day (A, B, C, D, F) indicates the degree to which the goal was met that day. Beside each grade go comments and observations that explain why the grade was given. Ideally, these comments should include what was happening in markets (and trading) at the time; what was going on in terms of the trader's thoughts and feelings; and what the trading outcomes were.

An advantage of this format is that it places equal emphasis upon the identification and assessment of strengths (the "A" grades) as weaknesses (the "F" grades). It focuses traders on the most relevant areas for improvement and easily leads to new goal setting for the following day when a poor grade is received in a particular area.

Traders I work with email me the journal/report cards daily and I provide daily email feedback. We then "meet" weekly by phone to review the week, learn from recent efforts, and set overarching goals for the next week. By utilizing the online medium for coaching, we minimize time and expense and achieve much of the advantages of having a full-time personal coach.

This regularity of contact is especially useful in ensuring that problem patterns are identified quickly and do not snowball. The money saved in drawdowns as a result is significant. The report cards are also helpful in focusing traders on their strengths, so that they can take maximum advantage of what they're doing right.

I use a variation of this report card format myself and have found it helpful for my own development as a trader. The key to using it for oneself is setting regular time aside to review the card, identify specific goals and actions for improvement, and then tracking those efforts at change the next day--repeating this process through the week. My experience is that one can achieve a compounding of learning with such active review.

It's also possible to connect with peers for mutual mentoring by sharing online journals/report cards. This is one of the advantages of such social networking platforms for traders as Stocktickr. Like going to the gym with a buddy to keep each other focused and motivated, collaborating on journals can be a great way to build advantages of a trading group even when trading independently.


Trader Perspectives on Keeping a Journal

Turning Setbacks Into Goals