The Right Way to Journal Your Trades

You’ve heard you should be keeping a trade journal, but what should be included? Trader Rob Hoffman reviews the important items that will help to increase efficiency and maximize profits.

You may have heard that keeping a trade journal about your trades—both good and bad—helps you learn what times of day you trade well and what types of strategies work best for you, but everybody does it a little bit differently. 

Our guest today is Rob Hoffman to talk about how he uses trade journaling. Rob, how do you use trade journaling in a way that helps you be a better trader?

What I recommended for my students, Tim, is to not just journal live trades, but I also recommend that they journal their simulator-based trades as well, because if they’re really trading a simulator correctly, they’re treating it as if it were their real money. 

What I like to see from a trader is first of all, that they journal not just where they bought and where they sold, but I like to understand exactly what was going on with them that morning. One of the key things that I find with traders is that their home life directly impacts the way they trade. 

For instance, what happens if that morning they have a fight with their spouse…about money of all things?  That directly impacts the way a trader trades. They trade more out of desperation, fear, to avoid arguments, and of course that puts them in a precarious position, just as an example. 

So I like to know what they were feeling and thinking from that morning. Then, what were the economic conditions that morning? What was the news of the morning; was it bearish, bullish, and what were the trends of the morning; were they bearish or bullish?

What kind of trade were they looking to use? Why were they looking to take that trade? Where were they originally thinking about taking the trade versus where they actually took the trade? Why was there a delay in pulling the trigger, for instance, is what I’m looking for there. 

What was their initial profit target before they entered the trade, and then what did the actual profit target end up being, and why was there a deviation between the two? Many times it could be because the market conditions changed. Other times it’s because they got too greedy, which is a high-risk signal, or they got scared.

So, there are a lot of things I’m looking for in that portion. Then when they close out the position, documenting the times, so when is the next trade? What I like to see people do is stop right there and journal that trade.

NEXT: Important Lessons to Learn from Your Trade Journal

It sounds real good to say “Oh, I’ll do it at the end of the day,” but you really forget the details, especially like myself these days. Sometimes I can’t remember the details and I have to ask my students, “What did I trade two hours ago?” 

So, in the real world, sometimes just stopping what you’re doing before you move on to the next trade is so valuable. Those are a couple of the key elements, and again, I just really encourage people to do it both in their live trading and their simulator-based trading.

If they’re going to use the simulator experience not just for tactical repetition, and understanding how to use electronic equipment, but actually to try to get a feel for the sensation of how their set-up will work in a live environment.

How often to you recommended that they go back and review this then to see patterns or ways that they can improve going forward?

Yes, that’s a great question. First of all, the journal must be done daily, ideally after each individual trade, and as far as review, really the review process almost starts right away. You’re looking for patterns almost right away.

You’re not waiting to journal three months worth of data and take three months worth of losses to identify areas of improvement. So that process really starts from day one because if you find yourself writing in your journal every day “Fought with my spouse; Fought with my spouse about money,” clearly we’ve already identified one area that needs to be improved.

Or “Took my profit too quickly,” or another great theme I see often is “Went for ten ticks, lost 20;” or “Went for 12 ticks, lost ten.” So they went for more ticks than the market was really willing to give and they turned a winner into a loser.

You start to see the patterns in the real world. If you’re really being honest with yourself and really journaling effectively, you start to see the patterns almost immediately, but certainly, taking a good hard look every couple weeks to really go back and reread what you wrote from the last couple weeks I think is very effective.