InvestorQ : How does a trading diary help me to improve my trading performance?
prachi Patwardhan made post

How does a trading diary help me to improve my trading performance?

Ria Jain answered.
3 years ago

Trading diary is all about being honest and transparent with your own self. The trading diary helps you to honestly and independently evaluate where you went right and where you went wrong. Remember, your trading diary is a confidential document which is only meant for your own consumption. Therefore, you can afford to be as honest and brutal on yourself as possible. Trading diary forces you to document and therefore makes you objectively think about your decisions, your actions and the impact on your trading performance. Honesty is the key.

Trading diary is not an abstract piece of ideas but something that is actionable and also action oriented. Trading diary focuses on action points. That means you have a clear idea what are the shortcomings in your trading plan and the areas you need to act upon. The whole idea of action points is that it goes beyond just explaining the performance to actually taking corrective action. This actually gives a more pragmatic input to your entire trading performance rather than mere suggestions.

The trick in a trading diary is to focus on the factors that are controllable. Why waste time on issues that you cannot control. You don’t have control over the actions of the US Fed, Saudi Arabia or Russia. But you can control over the risk you are willing to take. Trading diary focuses on the purely controllable factors. The biggest mistake that most traders commit is to blame the performance on the volatility in the markets and just leave it at that. The diary makes you focus on the trading actions that you take rather than focus purely on the environment.

You need trends to understand where the problem lies. Trading diary actually impels you to look at a problem head on. When you place orders and your stop losses are getting triggered, then there is a problem either with your understanding of the market or in your stop loss method. Once you are able to identify the problem, the resolution is a lot simpler.

Over a period of time, your daily trade jottings can be consolidated into weekly and monthly compendiums of your trading thoughts. Since the diary looks at your approach, your performance and the environment, it helps you to mould your strategy quite easily. The diary actually ends up becoming a documentation of your trades and helps you to also mould your trading plan accordingly.

Trading diary eventually becomes like a Bible which inculcates good trading habits in you. Here is how it works. The beauty of trading is that it is all about good trading habits and good trading habits are never built over night. It is an accumulation of your aggregate experiences and your learnings along the way. As you identify the weak areas and build upon it you actually build good trading habits which eventually become part of your trading strategy. It is this moulding that is the biggest contribution of a trading diary.