Lessons from the Pros

Specialty Skills

Documenting Your Trading Is a Roadmap to Success

If you’ve been trading for more than a month and you have been involved in classes that are designed to support you in getting the market knowledge that is so crucial to getting positive results, then no doubt you have heard about the critical nature of measuring and documenting your trades.  What gets measured gets improved.  In other words, documenting the data of your trading is essential to success.  Additionally, as you track the data of your trades it’s important to have a scorecard for both types of data.  OK, you may not know what I mean by that.  Well, there are basically two domains of data in day trading: one domain is comprised of mechanical data.  These are data that most traders will keep track of, if they are keeping track at all.  These data are made of your actual trading mechanics or execution oriented charting, news information, processing, analysis, entries, targets, stops and exits, to name a few.  Now, the other domain of data is just as important, but many traders around the planet don’t embrace this vital information with the same vigor, if at all.  These data can be described as “internal” data which are essentially your personal thoughts, emotions and behaviors; i.e., what you are thinking, emotionally feeling, and the unconscious beliefs that are driving your trading results.  So, you’ve got to attend to these data because they are involved with every trading decision that you make.

So, as you document you’ll want to address both of the domains of data, the mechanical and the internal through two journals.  The mechanical can be kept in a Trade Log which would be your initial plan with your rationale about the trade that you are contemplating or are about to enter. Documenting the actual plan and the implementation or lack thereof provides the data to compare your initial plan to the outcomes and to identify strength and weakness.  When you accurately record the elements of what went into the plan execution present during a trade, it exposes your actual execution vs. what you “hoped” would be the case.  This confronts illusion about your true skill.

Human beings are impulsively driven by greed and the desire to dominate.  They will take the easiest way to get and keep what they want.  This often has negative and unintended consequences that are frequently destructive.  And, humans are not naturally prone to accountability or self-discipline, which is why we need laws, rules, boundaries, and limits in society.  Trading requires self-imposed limits and these limits must be created through personal accountability.  You must know what you require in the way of protocols, strategies and rules in order to create effective self-limits or self-control.

Let’s look at some of the things to take note of as you document your mechanical data:Documenting success

  • What is my plan and rationale for this trade?
  • What are my levels?
  • What are my odds enhancers that establish this as a high probability trade?
  • After the trade…was my stop/limit hit or did I take myself out?
  • How much time was I in the trade?

Then compare your mechanical outcomes to your trading log (plan):

  • Where are the inconsistencies?
  • Where are the congruences?
  • Is anything different than what I planned or expected?

It’s very important to identify the weaknesses and the strengths of your execution.  After that, new habits and supportive behaviors can be created.

A Thought Journal is designed to reveal destructive and constructive thought patterns and emotional drivers of your internal data.  It’s critically important to identify the faulty patterns of thinking causing  behavior that was inconsistent with your stated objectives (for example, violated rules, abrogation of the plan, or commitments that were not kept).  After identifying the bad behavior (often the lack of follow-through or the violated rule(s), isolate them, which might entail making another rule to put greater specificity in your process.  When addressing the bad behavior, use mental techniques and tools like the ones taught in Mastering the Mental Game to help support effective ways to modify the bad behavior one trade at a time.  Thoughts and emotions are difficult to control.  The difficulty stems from the deep seated and unconscious nature of the programmed patterns that cause the unwanted behavior to begin with.  The goal is to get into a mindset in order to identify how the behavior reflected foggy thinking and how thoughts and emotions work together to create results—this knowledge helps to get and maintain a focus on the most important elements in the “next” trade in order to remain on target, on task and on purpose as you trade.  Then you can cut losses and position yourself to re-observe the order flow without the emotional noise.

Here are a few of the types of questions to guide your internal data documentation:

  • What caused me to fail my plan?
  • What emotions did I feel?
  • What was I thinking or believing that prompted that emotion?
  • What could I have done to manage this now and in the future?

When you begin to track this data, over time the patterns of thinking, feeling and doing will emerge.  This is information about your process that is more-often-than-not out of your awareness and stems from programming that includes limiting and irrational beliefs (a form of unconscious thoughts) that are tied to negative emotions that then drive the bad behaviors.  These patterns can also be grouped into “sub-personalities” or “personal parts” of your overall self that don’t always get along.  Your personality is formed through the learned achievements and learned limitations that are presented through your personal life story.  They are formed through patterning as a response to certain environmental conditions; i.e. family structure and the culture of where you grew up.  For instance, you may act differently when stressed and under pressure than when you are relaxed and unthreatened based upon the situation and what is at stake.

Different parts of you reflect different program patterns.  You are not always the same and how you are is based upon what part of you shows up.  Also, the environment, biorhythms, discomfort vs. comfort, and recent events that may have shaken your confidence, all have an impact upon who shows up.  So, sometimes you are confident and relaxed; sometimes you are agitated and anxious; sometimes you are depressed and fatalistic.  Deep-seated irrational beliefs create these emotions.  They result in “who is coming to the trade today” and greatly affect how events are perceived.  In other words, do you perceive the reality of the charts…or are you “making stuff up?”  The ideal as a trader is to approach the market system in an open, alert and focused state, being in balance and resonating with the market system.  This means remaining in a constant state of curiosity and observation; and documenting pertinent observations

Your Thought Journal and Trade Log work together to confront weaknesses and consolidate strengths.  You create new rules to modify your behavior until you sense you are in the zone of the trade.  As you consistently support your effectiveness by building your strengths and consistently minimizing your weaknesses, you become more and more aligned with what the market is—a natural system. Waiting and watching is a form of participation in the market.  With experience, and by increasing your capacity for internal alignment between your parts through journal work, you and the market can become aligned.  When this happens, you see the order flow as it is and not as you “wish” it would be.

This “feedback loop” of the Thought Journal and Trade Log process provides a roadmap and blueprint of where you want to go and what you want to build in your trading so you can accurately see and participate in the order flow without being overly influenced by negative emotional interference. The objective of dealing with emotional interference is not to attempt to eliminate it.  Emotions are an inextricable part of who we are as human beings.  The point is to learn how to understand more about them so that the negative can be contained and the positive can be harnessed and used as allies to boost the drive to stay on course so behavior and performance are reinforced rather than adversely affected.  As you modify both cause and effect, you know where that modification is leading.  By knowing your strengths and weaknesses as a trader, knowing the state you want to achieve, and knowing you are on the path to getting there, you close the gap between you and the market.  Your natural ability to perform, and the market’s natural ability to perform, become better aligned, and the correct action to take next becomes self-evident.  Get in, stay in or get out, stay out.

So, always have your journal and trade log at the ready.  Remember, you can’t change what you can’t face, and you can’t face what you don’t know.  Document, record, measure and track your market participation.  Learn to bring your A-game to your platform and keep your A-game while in the trade.  This is just one of the concepts that are taught in the “Mastering the Mental GameOnline and On-location course and the XLT.  Ask your Online Trading Academy representative for more information.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading

Dr. Woody Johnson


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.