Lessons from the Pros


The Importance of Documenting Your Trades

Ralph looked on feeling anxious and tense as the price action inched toward his stop. He had drawn a supply zone on the ES E-mini 60 minute chart and had placed his stop 2 ticks above the top line of the zone. He told himself, “Oh, crap, it’s going to take me out.” He didn’t like being stopped out as he admitted to himself that, “Nobody does.” But he also reminded himself that, “I have the stop in to protect me and it is doing what it is designed to do…and that’s OK.” Just then he saw that his stop had been hit and he was out of the trade for a small loss. In the past, he would become so fearful of being stopped out that he would move his stop. This was a distinct violation of his rules. In fact, in the past, he would frequently move his stop several times and often be met with substantial losses, much to his dismay. When that happened, he would revenge trade almost immediately afterwards and end up with two major losses back-to-back. In these situations, he would become dejected, depressed and despondent. His subsequent trades also suffered as well due to the fact that he became thoroughly distracted by the negative emotions and would make additional mistakes, which cost him even more. He began to realize that this negative pattern would destroy his trading account if it continued. He knew he had to change. Ralph learned about the importance of documenting his trades; not just his planning and execution, which were his mechanical data, but he learned that he needed to track his “internal data,” his thoughts, emotions and behavior. He also learned that once he gained more awareness of the cause for this issue, that there were mental and emotional tools to help him make the changes in his thinking and feelings, which helped him immensely toward turning the corner on this negative pattern. Now, as he considered the results of his trade more closely, he recognized that he had traded his plan and kept all of his rules. His tension decreased and he felt much better about the fact that he had a “private victory,” meaning that he had resisted the temptation to violate his rule of not moving the stop, and therefore, had kept his commitment to himself. He then picked up his pen and wrote in his Thought Journal that he had successfully negotiated this trade even though he felt anxiety and tension pressuring him to move his stop.

Documenting the data of your trading is essential to success. Also, it’s of vital importance to track not only the “mechanical data,” i.e., the data of the actual trading execution (entry, targets, stops and exits), but you must track the “internal data” as well, i.e., what you are thinking, emotionally feeling, and the unconscious beliefs. Actually, the internal data are directly connected to the results that you get; that is, results are the outcome of your thoughts, emotions and behaviors – the T + E + B = R equation. So, you’ve got to attend to the data of this equation because it is involved with every trading decision that you make. Because there are two kinds of data (mechanical and internal), you need two ways of documenting your trades. One is a Trade Log, which tracks the mechanical data, and the other is a Thought Journal, which tracks the internal data. Both are equally important to your success. Humans 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 strategies and rules in order to create effective self-limits or self-control in both your planning and execution (the mechanical data), and your thoughts and emotions (the internal data). When you accurately record the thinking that was present during a trade, it exposes your “actual” state of mind, not the one that you think you have. Here are some of the things to look for:

  • Was my stop/limit hit, or did I take myself out?
  • How much time was I in the trade?

Then compare your recorded behaviors and thoughts to your Trade Plan:

  • Where are the inconsistencies?
  • Where are the congruencies?
  • 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 can be created.

It is critically important to identify the faulty patterns of thinking that cause bad behavior. After identifying the bad behavior, isolate it by creating rules to follow. When the rule has been created, 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. Thought 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 mental place to see how the behavior reflected foggy thinking, and how thoughts and emotions work together to create results — this knowledge helps to create rules designed to cut losses and position you to re-observe the order flow without the emotional noise.

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 programming and limiting 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 chart? The goal is to get on the right side of the order flow. The ideal as a trader is to approach the market system in a balanced and positive state. You want to be focused on supporting your effectiveness, and a big part of that is accepting the market reality. This means remaining in a constant state of observation. The question, is “How close to my ‘A’ Game, my highest and best self, am I at this moment?” The market is constant. You don’t need to be concerned with the market. You just need to be fully present, in that moment, and available for it.

Your Thought Journal and Trade Log work together to confront weaknesses and consolidate strengths. As you consistently support your effectiveness by building your strengths and by consistently minimizing your weaknesses, you become more and more aligned so that you can use all of your resources in the market. With experience, and by increasing your capacity for internal alignment through journal work, you are able to more accurately track the market movements. When this happens, you see the order flow as it is and not as you “wish” it would be. The Feedback Loop of the Thought Journal and Trade Log provides a road map 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 emotional interference. Emotions are an inextricable part of who we are as human beings. The point is to understand more about them so they can be contained and managed and used as an ally to boost the drive to stay on course. 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 getting the results that you want.

So, always have your journals 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 Game Online, On-location courses and the coaching in the Extended Learning Track (XLT) program. Ask your Education Counselor for more information. Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading,

– 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.