Step 5. Keep a Trade Log
A trade log is an excellent tool for viewing the bigger picture. In one snapshot you can get an overview of your trading history and identify successes and mistakes made along the way.
All good traders are also good record keepers. Remember, this is a business and you are not only the owner, but also the accountant! If you win a trade, then you want to know exactly why and how. More importantly, you want to know the same when you lose, so you don't repeat unnecessary mistakes. As you enter each trade, record your comments about why you made the trade and include details such as:
- Price targets
- Entry and exit points
- Time of trade
- Support and resistance levels
- Technical indicators
- Market open and close for the day
Daily Post-Mortem
After each trading day, adding up your profit or loss is secondary to knowing the why and how of your trading performance. Write down your daily conclusions in your trading journal so that you can reference them again later. Your trade log will help you organize and record your trades and comments.
Honesty and self-awareness are important traits for this exercise. Constant assessment of your trading is one of the best ways to avoid repeating mistakes and to remind yourself of what has worked. Be sure to save your trading records so you can go back and analyze elements such as:
- Profit or loss for a particular system or trading strategy
- Drawdowns (maximum loss per trade using a trading system)
- Average time per trade (to calculate trade efficiency)
- Other important factors, such as market news
- Comparison of trades to a buy-and-hold strategy
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