Endgame: The Science of Journaling

This is the ending of a trilogy on how to gather data as a process for rebuilding your trading career with a solid foundation. Backtesting and Forwardtesting will give you both the data needed to check the Edge and Expectancy of your system. While journaling will guide you if you are able to execute your trading system and for you to know the challenges your system will experience.

Why is journaling your trades important?

A human mind can only store an amount of memory that it can handle on a certain timespan. Therefore, most of our childhood memories are foggy and not accurate. This is the same in trading. There are too much information, patterns, DNA, and fractals that you will experience in your trading career. Our mind is like a hard drive that will eventually replace some of the old data in exchange for a new one. This is the reason why you must store all the data not in your mind but in soft bound or hard bound, wherever you see fit.

*Sample data of my journal that I am updating everyday

Questions to be answered in journaling your trade:

What are the reasons for your buying and selling?

Whether you follow your plan or not, list down the reasons why you take that trade. From this, you will be able to check your mistakes and unlearn unnecessary actions that might lead you in not following your trading plan. We are still human and sometimes we may fall to the temptation of gambling our money away.

Are we able to stick with our entries and exits?

In the testing phase, we are assuming that our entries and exits were perfect that is why we can compute our Edge. It is important that we can list if we follow our desired entries and exits or not. There will be times that conviction to buy or sell the stock is high that is why some entries and exits plans will be deviated. Some will be external factors like internet connectivity and broker problems. By listing this down, you can create a plan on how to minimize this problem regarding your entries and exits.

Are we able to stick with our trade allocations?

This is important because in testing phase, it was assumed that we can buy the shares in our desired range. A deviation of this might affect our expectancy of the strategy. From here we can filter in the future what stocks are we able to trade based on their current float and spread’s DNA. The more the liquidity, the more that you are safe on your allocations.

Are there catalyst or major events affecting an asset or the market?

By listing possible catalysts or events, we can determine in the future the possible move based on the behavior of the stock and the market. This will be added to your data and a possible new strategy might emerge from this. Listing this down will create additional back-up plans in preparation if a black swan event happens.

What are your emotions and physical state before and during trading?

This is the underrated aspect of journaling which most people forget to list down. Especially if you are trading in a lower timeframe, this will be essential in your trading system. An impulsive behavior might lead to overtrading and over-leveraged trades. A timid behavior might lead to being unable to execute a trading plan. Therefore, you must also list down all things that might affect how and why you are executing a trade and even your physical state. A sick body might lead to a sick mindset then to a sick trade resulting in a sick outcome.

Trading is like a business where you must gather, record, and analyze data for our capital portfolio to grow. Analyzing the internal and external factors that might affect your trading career might give you the idea on how you can adjust your system based on your lifestyle, goals, and current actual condition. Unlike in the testing phase, almost all the data are perfect but, the market will reveal the strategies imperfections through so many factors. Journaling will guide you on your path to master not only your system but yourself.

Backtesting to build your edge, Forwardtesting to build your confidence and Journaling to build your career. This triquetra must not be neglected if you want to have a more solid foundation on your trading career. Remember: A house, no matter how strong and big it is, if the foundation is soft, it will still sink.


Full Name: Jan-Angel Echano
Investagrams username: @Soral

About the Contributor:
A passionate trader who aims to share the reality, the HOWs and the WHYs in trading. My goal is to help traders and investors like me to continuously improve and refine our skills to the path of mastery.

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