In my Last Article i have highlighted the importance of trading Journal. But what most of new traders do is record their trades over a period of time and keep record on Profit and loss. They fail to realize is that’s just the beginning. Keeping track of your trading performance is much more than just looking at the profit and loss statement, It also means looking and analyzing all the trades, understanding the emotions you were going through at the execution of trade,during the trade and exiting the trade.These all details help you out how you are trading over time and will help your improvement and development as a trader.
Trading should be considered as business. AS YOUR hard earned money is on stake . I always considered trading as financial jungle where you can be a “Hunter” or “Get Hunted” .
Take for example a Online Portal Manager. A good manager wants to determine the busiest hours so that he can put more servers to handle the traffic load. He also takes note of which items are the best-sellers. Analyzing small details this like these can help the manager increase efficiently of website, better manage the inventory.
So what are details a trader should note in his trading journal.
Since your primary goal as a trader is to protect your capital AT ALL COST, plotting your equity curve is a top priority. Simply put, the equity curve is a graphical representation of the money in your account over a period of time.
What you want to pay attention to is the slope or change in the direction of your curve. It will not be a smooth ride lots f ups and down. But Goal of Professional traders should be over a 10 year period it should look as smooth as possible. Do not let short term up and down defeat you from the purpose.
However, if your curve dips more than the usual, you may want to investigate what you’re not doing right and make the necessary adjustments. Meanwhile, if you see the curve rising quickly, then you would want to see what your money-maker is so you’d know what you should keep on doing. Bulls Equity curve for last 3 days would have rise exponentially 🙂
Most important thing you need to focus on is DRAW DOWN. Drawdown is the value lost in an account after a series of consecutive losing trades. A good trader will brace himself for losing streaks and know how much he needs to win in order to get back up in the green.
Not only can you use the data you’ve gathered to gauge your trading performance, but you can use it to discover any psychological trading issues you may have and also to make appropriate changes to your trading style.
One of My Student who is a Intraday trader he examined his stats and found out that most of his loss making traders occur between 11-12 PM over a period of 1 year. He worked on this diligently and was able to find this out. After this finding we worked on this and few more flaws and he did take some precautionary steps and his equity curve had a dramtic improvement over a period on 6 months.
Keeping Trading Journal is crucial if you want to be a consistent profitable trader. The more you know about what you’re doing and how you’re doing it, the easier it is for you to adjust and leverage on your strength and address your weaknesses.