While it would be nice to enter the world of day trading and instantly see success, that’s rarely the case. Day trading takes hard work and requires a constant focus on self-improvement. This means you need to constantly analyze what you are doing right and what you are doing wrong in order to make smarter trading decisions in the future. One of the best ways to get started with this type of analysis is by creating a trading journal and recording your progress.
A trading journal is simply a detailed record of your trades. You can record this journal on your computer or on a notepad; the choice is up to you. In this journal, you should keep track of a few things.
- The date of the trade
- The ticker you are trading
- The amount of shares you are trading
- Your entry price
- Your exit price
- Your profit/loss for the trade
You may also want to include a detailed comments section. In this section you may include your rationale for entering the trade, the setup you saw, what you did right in the trade, what you did wrong in the trade, etc. While it can be tedious to record every little detail about a trade, this data can be incredibly helpful in the long run, as it will allow you to look back on all of your trades and look for patterns. For example, you may find that 90% of your profits come from long trades, even though only 50% of your trades are for long setups. An insight like this will help you reshape your strategy and improve your profitability. This leads to the importance of pivot points.
Albert Einstein has a quote that states, “Insanity is doing the same thing over and over and expecting different results.” This quote is particularly relevant in the world of trading. If you’re constantly taking the same approach to trading, you should expect to see the same results. So, if you are constantly losing money, you can expect to lose more. It’s only when you analyze what you are doing and make the necessary changes that you can start improving your results.
Every now and then, you should go over all of your trades (from your trading journal) and start drawing some insights. How often you choose to do this will be relative to how frequently you trade. You should be looking for patterns and insights that will allow you to improve your trading. These insights should lead you to pivot points: points where you change what you have been doing in hopes of achieving new results.
Here are some examples:
– Let’s say you have a detailed trading journal that shows you have placed 10 trades based on the RSI indicator. Of these 10 trades, 9 resulted in losses. It would be fair to infer that this indicator is not really helping your trading, therefore you may want to eliminate it from your strategy
– You go over your trading journal to discover that you have a 70% win rate yet you still aren’t very profitable. Upon digging deeper, you discover that your average profit is $200 while your average loss is about $600, therefore, every time you lose, you wipe out 3 wins. You may want to create a new trading rule stating that you’ll cut losses at $200 every time.
Don’t underestimate the power of using a trading journal and drawing actionable insights. This can make or break your trading success. Remember, if you’re not getting the results you want, you’ll need to start changing the way you are approaching things. This intentional search for self-improvement will help your trading immensely.
Day trading is a constant learning process. Make sure you are always looking for ways to improve. Hopefully, this starter series has been of help. More trading insights are on the way so keep checking back on the blog!