As a prop trader your success is all about making informed and strategic decisions. A trading journal is a key tool in this process by recording all your trades.
It lets you track your progress over time and see clearly what works and what doesn’t. By going back and looking at your past trades you gain insight into the markets you trade and your own trading habits.
Keeping a trading journal helps you to be disciplined and consistent in your trading. Recording the details of each trade – instrument, size, entry and exit points, market conditions and your reasoning for the trade – allows you to do better post trade analysis.
This helps prop traders to become more self aware by showing them the thought process behind their trading decisions.
Your journal is also a testing ground for new strategies. Before you put new strategies into live trades you can use your journal to simulate or reflect on them with historical data.
This helps you to figure out which strategies work best for you and your trading goals and refine your techniques and performance in the high speed world of prop trading.
Why Keep a Trading Journal
Keeping a trading journal gives prop traders insights into their habits, strategies and emotions. It’s a mirror to your trading and helps you to refine your process for consistency.
Reflection and Self Improvement
By recording your trades you can review in detail both winning and losing trades. Your journal should state the reason for each trade, the expectation and the outcome.
This shows you the errors you make and the winning patterns. Time spent on reflection is an investment in your trading career so you can identify areas to improve.
Strategy Testing
Your trading journal is a lab for strategy development. Recording all trades including entry and exit points, size and instrument gives you a dataset to extract analytics from.
You will see what works, where it works and under what market conditions. That’s key to your trading strategy.
Emotional Control
The emotional rollercoaster of trading is the downfall of even the best traders. A trading journal helps you to manage your emotions by forcing a process to trading.
By showing you the emotional patterns behind losing trades your journal will help you to develop a disciplined trading mindset which is key to long term success.
What to Include in a Trading Journal
In being disciplined with prop trading your journal should have detailed records and analysis. Here are the essentials to make it a valuable tool in your trading toolbox.
Trade Details
- Entry and Exit Points: Record the exact levels you entered and exited trades, use annotations on your charts for clarity.
- Position Size and Trade Structure: Note the size of your positions and the trade structure including any leverage used.
Market
- Market Conditions: Record the market conditions at the time of each trade, trending, range bound or volatile.
- Technicals: List the technicals that led to the trade and any notable chart patterns.
Goals and Review
- Objectives: Write down your specific goals for each trade, profit targets and educational outcomes.
- Performance Review: Review your trades regularly to see how you performed against your goals, note any deviations and why. Use this data to refine your strategies over time.
How to Analyze a Trading Journal
Patterns and Mistakes
By reviewing your trades in detail you can see the patterns that lead to winning and the mistakes that lead to losing. Record each trade, including the strategy used and look for trends.
- Winning Patterns: Drill down into your winners to find the common denominator.
- Repeating Mistakes: Notice the behaviors that coincide with your losses and fix them.
Risk
Understanding the risk taken in each trade vs the reward achieved is key to long term success. Break down your trades by risk to reward and stop loss.
- Risk-to-Reward: Is your reward worth the risk?
- Stop-Loss: Are your stop losses protecting your capital.
Performance Metrics
You must track a range of performance metrics. That way you can actually measure your trading.
- Profit/Loss Ratios: Calculate these regularly to measure financial performance.
- Trade Size & Frequency: Is your trade size or frequency related to your outcomes.
By looking at these elements of your journal you will find out what works for you.