This article describes what a trading journal is, why they are useful, how you create one, what to record in the journal, how often you should look at your trading journal, and finally, we provide a trading journal example for free.
This article provides you with a free downloadable trading journal example. A simple trading journal (or trading log) is a great tool for any aspiring trader. We recommend writing down all your trades in a database after each trading day.
Table of contents:
Key Takeaways:
- A trading journal, essential for traders, records all trades for self-evaluation and improvement.
- It encourages systematic trading with a plan, increasing the chance of success.
- Regular review of the trading journal helps identify patterns and areas for improvement.
- Manually updating the journal promotes attention to detail and discipline.
- The journal should include strategy name, direction, dates, prices, size, drawdown, risk/reward, profit/loss, and emotional notes.
Invest in preparedness, not in prediction.
- Nassim Taleb
Being prepared is one of the most important factors in succeeding, whether you are an investor or a trader. A trading journal is an absolute must, but we are pretty confident that very few traders keep one. Thus, to succeed in short-term trading, which very much is a zero-sum game, you gain an advantage over your competitors just by having a trading journal!
First, let’s define what a trading journal is:
What is a trading journal?
A trading journal is a log (normally a spreadsheet or a software) that you use to record your trades. Let’s call it a database of all your trades. You can later reflect upon earlier trades and thus evaluate yourself. It’s a fantastic tool to create a good feedback loop – a prerequisite for successful trading. Feedback is the most important thing in improvement!
We regard a sample trading journal as one of the most important factors for becoming a successful trader. If you take trading seriously, you’ll find this an invaluable tool later on:
Why trading journals are useful – why use it
We have emphasized many times the importance of a trading journal, and we can assure you will find it handy and useful at a later time.
Perhaps the main reason why a trading log is useful is that it forces you to have a trading plan. It might force you to backtest what you are actually trading! Additionally, you need to share some thoughts on risk management, drawdowns, and trading psychology.
Other things that are useful with a trading journal:
- You get statistics of your win ratio and consistency. Do you have a positive expectancy?
- You can compare backtests to live trading (to find out slippage)
- It keeps you accountable
- You can find patterns in your habits you were unaware of
- You can find which strategies you perform the best at
- You create a feedback loop
- Get ideas for trading edges (what is a trading edge?)
The last point is often overlooked. A trading journal is a great tool to get inspiration and new trading ideas, and having a trading journal is one of our main trading lessons.
Trading plan
A trading plan is not the same as a trading journal. While a journal records all your trades in a log, a trading plan is the work you put in before you do the log. The plan is how and why you trade. You need to be systematic to have a trading plan. It involves having clear trading rules and settings for each strategy or asset you are trading. Mind you, we recommend having many trading strategies that have an internal low or negative correlation. Preferably, the strategies should complement each other.
Trading plan and mechanical trading
The more you quantify, the more you can automate. Automation is power! If you are able to automate your strategies it means more strategies to trade. There are practically no limits to how many strategies you can trade – except your imagination to backtest and find new trading strategies.
If you are new to mechanical trading we recommend the following two articles:
- Mechanical Trading Strategies – Advantages with Mechanical Rules and Edges
- Mechanical Trading Strategies Vs. Discretionary Trading Strategies
Do professional traders use a trading plan?
Yes, professional traders use a trading plan. Jim Simons, the man behind the Medallion Fund, is a perfect example of how far you can get with a backtested trading plan. It’s probably the most successful hedge fund on this planet.
- How Jim Simons’ Trading Strategies Made 66% A Year
Just one thing that prohibits you from having a trading plan and journal: laziness.
You need a trading journal to avoid second-guessing
Let’s give you an example from live trading of why you should have a trading journal to improve trust in your trading:
The pink line shows the mechanical results, while the blue line shows our live trading. The difference is enormous, both relative and money-wise, and it’s all due to a few decisions that went against the rules.
Our simple conclusion is that we are better off walking the dog, going to the pub, or chasing girls. The more we stare at the screen, the more stupid mistakes we make!
How to create and write a trading journal
Creating a trading journal is simple. You need a spreadsheet and you need to tailor the spreadsheet to your own needs, but this is done by trial and error. There are no hard rules for what you need to record, but we provide you with an example further down in the article.
You can create a journal in 1-2 hours. The best advice is simply to start. As you go along you might find other variables you want to record. The longer you keep trading, the more you’d want to put into your trading log.
When to keep records in a trading journal spreadsheet
At the end of the trading day, you would want to write down manually all your trades in your trading spreadsheet. It might not be the fanciest job in the world, but our best advice is to put it in the records while it’s still fresh in your memory, even though it might be more tempting to order champagne and escorts after a great trading day.
We stress the importance of keeping a manual log. We are sure copying and pasting is tempting, but you’ll miss details if you don’t do it manually. We have always done our trading log manually. At the height of our day trading back in 2008, we made hundreds of trades per day, yet we still entered the trades manually. By doing it manually, we managed to tweak our strategies all the time. The devil is in the details!
If you keep records for a long time, it gets more interesting with more data you have. You can look back on past performance and find out where you went wrong or what you can do to improve performance. The devil is often in the details. If you have a long trading journal, you have a great tool to create a feedback loop.
What should be in a trading journal?
Certain items should be a bare minimum to keep in your trading journal. An example of what you could have in your trading journal is the following:
- Name of strategy
- Long or short direction
- Date of opened position
- Date closed position
- Entry price (commission)
- Exit price (commission)
- Position size
- Max drawdown
- Risk/reward
- Profit/loss
- Arguments (red flags) of when to stop trading a strategy – written down BEFORE you start trading it
As you can see, this is no rocket science – it’s more about discipline and taking the time and effort to do this exercise consistently.
You can also have a section in the journal where you jot down your emotions.
As you go along you’ll most likely expand on the variables in the journal and log. You need to find out by trial and error what works best for you. As mentioned above, the best way to do trial and error is to do it manually.
When to scrutinize and reflect upon the trading journal
A trading journal is a tool that you should at least look at monthly, but it depends on your amount of trades. The more data you have in your database, the better the tool!
Download our trading journal example spreadsheet
We have made a simple trading journal example (spreadsheet) for your convenience to download:
- Trading journal example for OpenOffice
- Trading journal example for Excel
Below is a screenshot of a simple trading journal:
Online and automatic trading journals
There exist apps and software that can track your trades automatically. That has its pros and cons. We will not delve into that, but we’d like to mention that you lose a great deal of info if you automate it.
We type our trades manually, and there is a reason for that: you get to see patterns that you are not going to see if you automate the process. It might be time-consuming and boring, but we believe it is time well spent.
Alternatively, you can make a compromise and do both.
Also in the trading journal: list arguments for when to stop trading
One of the most difficult task in trading is to determine when to stop trading a specific strategy. This is why your journal should keep notes, arguments, or red flags for when you should consider stop trading a strategy. This must be put down BEFORE you start trading it live.
For example, you might write that down that the strategy should be halved in size after x% drawdown, and stopped completely if it reaches 2x% drawdown.
Alternatively, you might put into demo mode if the returns are lower than x% over a 12 month period.
Most importantly, you try to quantify most of the rules.
Trading Diary
A trading diary serves as a personal narrative of a trader’s journey through the financial markets, documenting not only the technical aspects of each trade but also the emotional and psychological factors at play. It is a tool for introspection and self-reflection, offering invaluable insights into one’s trading habits, strengths, and weaknesses. By diligently recording each trade, along with accompanying thoughts and feelings, traders can identify patterns, refine strategies, and cultivate discipline. Regularly reviewing the trading diary fosters a continuous feedback loop, guiding traders towards continuous improvement and greater success in the dynamic world of trading.
List of trading strategies
Since Quantified Strategies started this blog in 2012, we have written over 2000 articles. Many of these articles contain specific trading rules that can be backtested for profitability and performance metrics.
The trading rules are compiled into a package where you can purchase all of them (recommended) or just a few of your choice. We have hundreds of trading ideas for our members.
We have also plenty of trading strategies that are free and you can find them on our list of profitable trading systems. The strategies are an excellent resource to help you get some trading ideas.
Summary of trading journals
This article provides you with a free trading journal example (spreadsheet). The benefits are more apparent the longer you trade and the more experience you get. Make sure you have a trading journal!
When you start trading you should make sure you have a trading journal as soon as possible. You’ll soon discover what you are doing correctly or where you go wrong! And if you also update your journal manually, you’ll see details you otherwise wouldn’t if you cut and paste.
FAQ:
What should be included in a trading journal?
A trading journal should, at a minimum, include details such as the strategy’s name, direction (long or short), dates of opened and closed positions, entry and exit prices, position size, max drawdown, risk/reward ratio, and profit/loss. Additional sections for recording emotions are also suggested.
Do professional traders use a trading plan?
Yes, professional traders use trading plans. Having a systematic approach with clear rules and settings for each strategy or asset is crucial. Automation, where possible, is recommended as it allows for trading multiple strategies effectively.
How do I use a trading journal to improve my trading?
A trading journal helps in identifying areas for improvement by providing insights into trading patterns, strategies, and emotional aspects. Regularly reviewing the journal allows traders to refine their approach and maintain a continuous feedback loop.
