Keeping a trading journal

A trading journal is the record that tells you what is actually happening in your trading, rather than what it feels like is happening. Without one, you are relying on memory, and memory is heavily shaped by the biases covered earlier in this course.

What to record

Record every trade, including the ones you would rather forget. The most useful journals capture three kinds of information.

The facts

• Date and time of entry and exit.
• Instrument and direction (buy or sell).
• Entry price, stop-loss, target and exit price.
• Position size and the amount risked.
• Result in your account currency and in R.

R is your result expressed as a multiple of the amount you risked. If you risked 100 USD and made 150 USD, the result is plus 1.5R. If you lost the full 100 USD, it is minus 1R. Using R lets you compare trades of different sizes fairly.

The reasoning

• Which setup from your plan this was.
• Why you entered, in one or two sentences.
• Whether you followed your plan: yes or no.

The state of mind

• How you felt before the trade, for example calm, rushed, bored or frustrated.
• Anything unusual: tiredness, distractions, a previous loss on your mind.

The "followed plan" and "state of mind" columns are often the most valuable, because they reveal behaviour patterns that price data alone cannot.

A sample journal

All figures below are examples for a 10,000 USD account risking 100 USD per trade.

Notice the Tuesday trade: no setup, larger size and a "bored" note. One line like that is easy to dismiss. Ten of them in a month tell you something important.

Measuring performance

Once you have a reasonable number of trades, a few simple numbers summarise how your method is doing.

• Win rate = winning trades ÷ total trades.
• Average win and average loss, in R.
• Expectancy = (win rate × average win) minus (loss rate × average loss). This is the average result per trade, in R.

Worked example: expectancy

Over 20 trades you have 8 winners averaging plus 2R and 12 losers averaging minus 1R.

• Win rate = 8 ÷ 20 = 40%, so the loss rate is 60%.
• Expectancy = (0.40 × 2) minus (0.60 × 1) = 0.80 minus 0.60 = plus 0.2R per trade.

Check: total = (8 × 2R) minus (12 × 1R) = 16R minus 12R = 4R. Divided by 20 trades, that is 0.2R per trade.

A positive expectancy over 20 trades is encouraging, but 20 trades is a small sample. Treat early results as provisional, and remember that spreads, commission and slippage all reduce real-world results. Past results are not a reliable guide to future ones.

The weekly review

Set aside 30 to 45 minutes at the end of each week. Work through the same questions every time:

1. Plan adherence. What percentage of trades followed the plan fully? This is the first number to improve.
2. Rule breaks. For every "No" in the followed-plan column, what happened just before? Look for triggers such as a previous loss, boredom or trading outside your hours.
3. Setups. Which setups produced the best and worst results in R? Note this, but avoid changing rules on a single week's data.
4. Risk. Did any trade risk more than your rule allowed? Did you respect your daily and weekly limits?
5. One focus. Choose one specific behaviour to improve next week, for example "no trades without a written stop level".

Keep a short summary of each review. Over months, these summaries become a record of how your discipline is developing.

Key takeaways

• Record facts, reasoning and state of mind for every trade, including the ones you would rather forget.
• Express results in R, a multiple of the amount risked, so trades of different sizes can be compared.
• Expectancy = (win rate × average win) minus (loss rate × average loss): 8 wins of 2R and 12 losses of 1R give plus 0.2R per trade.
• Treat small samples as provisional and allow for trading costs.
• A regular weekly review should start with plan adherence and end with one specific focus for next week.