A journal, be it called a trader’s journal, trading journal, stock journal, investment journal or any other derivation has a key place in any investor’s methodology. Tracking all of your stock trades and also your thoughts on what you might invest in can be the road to better returns for multiple reasons. It reinforces discipline, lets you learn from mistakes and shows you which strategies or stock picking sources have worked and which haven’t.
For years I read the advice from others about keeping a journal of my investments and felt that it was a waste of time and did not see why I should key a trading journal. I knew what I was doing and didn’t need a journal to prove it. Out of necessity, I started growing an excel spreadsheet of my trades to help me decide what to invest in and what would give me the best return with my limited funds. At some point, I started writing other key decision-making notes in the final column. I found myself looking back on these notes more than I thought I would so I decided to start keeping a journal. These are my tips from what I learned while building a journal from scratch.
- Start small – You don’t have to conquer the world on the first day. Think of it like you are starting an exercise program. On the first day you don’t go run a 10K race, you start by walking, then eventually start adding in some short runs until you feel comfortable at the full distance. Then you can add speed training. Even if you only start by listing the stocks you bought or shorted you have begun the process. Eventually start adding a few bullet points on why entered the trade and from there you can take it wherever you want.
- Keep it where it’s handy – Mine began as an Excel spreadsheet with just numbers and ticker symbols. I always had it on my work computer where I could access it when I traded during the day. Later I moved my trading journal to a nice little notebook so I could take it with me, but quickly found I didn’t like to carry it around and moved back the spreadsheet and just put it on a flash drive that I could attach to my keychain. Once my journal grew into more in-depth writings, I moved it to Word and then this blog.
- Make it searchable – One of the biggest drawback to keeping a trading journal on paper is that you can’t do a quick search for something you remember writing down sometime in the past. By using a Word doc or a blog you can quickly find any ticker symbol you’ve written on in a second or two.
- Don’t let yourself trade without writing down why – One of the biggest benefits to keeping a journal is the self-discipline it can teach you. By forcing yourself to write down your reasons for each trade you can immediately see if you are following whatever guidelines you previously set for your own trading model. If you don’t have a trading model, a journal will help you find one that works for you. If you have decided you will only buy stocks with low P/E ratios, make that a bullet point you have to write down before trading. When I first started writing my trading journal in Word I copied a preset list of qualifiers I used as a template before each purchase. I made a rule for myself that if each bullet didn’t match my goals I wouldn’t trade on that stock. Over time, that list of bullets changed as I refined my model into what truly worked for me.
- Review what you’ve written – You have to review what you’ve written to get the most out of your trading journal. Reading previous entries and doing searches for why you bought a stock can teach you how to learn from your mistakes and repeat your winning trades.
My first sentence said “any investor’s methodology”, but I only covered the benefits for stock investors above. That’s because I’m a stock investor and feel more comfortable writing about what I know. Mutual Fund investors will benefit from keeping an investors journal too. By listing each mutual fund’s top 5 holdings you will quickly see if you have overlap with what you thought you diversified by using different funds.
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