If you read virtually any book by successful traders, you will see how much credence they put into the huge impact that regular journal writing and reviewing can have on improving performance. So presumably there must be something to it.

In this article I am going to share some of the benefits to your trading of keeping a journal, as well as some practical steps to enable you to structure your writing effectively.

The Benefits of Journaling – An Overview

We spend our working lives looking at, and studying the markets, but much less about how we interact with it.

No matter how well we understand the markets we can never perform to our fullest potential if we are not fully aware of why we do what we do, when we trade.

Journaling is a tool that enables you to track your behavioural and emotional patterns. We look for patterns in the market, so isn’t it vital to know what you are doing when you trade at your best, and what is happening, what is different, when you trade at your worst?

Journaling is a tool which: –

  • Creates awareness – because we can only change negative patterns of behaviour if we know what they are.
  • Helps you make implicit feelings explicit – we feel things all day long and the next day we have usually forgotten them, but they are data, they are signals which drive your decision making. So, by giving them free expression in a journal, it allows us to become aware of what is driving our actions. If you write them down and regularly review, you will inevitably see the same scripts happening repeatedly.
  • Enables you to understand how your different feelings – anything from frustration to anger to boredom, impact your trading success. How your emotional temperature will always impact the bottom line.

Building a Journal

A journal has two aspects to it – your trades and you. ‘You’ can be broken down into 4 categories.

To simplify this, think back to a recent losing trade. Maybe you moved your stop a couple of times and then could not take the pain anymore, so bailed out.

Now think about the following.

What were your: –

  • Behavioural Patterns – How did you act during this trade – before/during/after?
  • Emotional Patterns – What moods or states were you in during this – how do you feel before/during/after?
  • Cognitive Patterns – How did you talk to yourself? What were your specific thinking patterns at each stage of the process?
  • Physical patterns – What was your energy like? Your posture? The tension in your body?

As you are writing down these observations begin to overlay them with the specifics of the trade.

Some of the relevant information might be: –

  • Your reasons for putting the trade on.
  • The time of day (we often perform better when we are most energised and alert).
  • Instrument/sizing and price.
  • Type of entry – all at once or staggered.
  • Target and stop levels.
  • How well you stuck to your plan.

If you did this for a few weeks, you would notice patterns starting to emerge. Not only during the event itself but potentially what happens next.

You might see something like this repeating: –

The Event

Failing to Follow Rules (moving stop)

Thoughts / Feelings / Behaviours

“Why didn’t I ……..
“I’m disgusted with myself” etc.
Loss of confidence
Despair
Anger
Fear
Tense
Acting out

Consequences

Emotional Distress
Lose more money
Overtrade
Revenge trade
Miss next trade
etc.

By looking back at your journal, you will not only see your patterns but also the domino effect of actions, thoughts and feelings.

Some Patterns That You May See Emerge

By no means is this an exhaustive list of what may emerge in your journal, but these are common occurrences.

  • Impulsive after losing
  • Risk averse after bad run
  • Overconfidence leading to marginal trades or stop doing the work
  • Cutting winning positions
  • Ignoring stops
  • Beating yourself up
  • Excitement hunt/FOMO

We can’t alter a pattern if we don’t know about it – and the patterns will always have consequences.

Journaling can be done in quiet periods or at end of day – review your failures but also your successes. Notice what was different.

Making it Doable

Anything that requires change takes time to formulate into a new habit. So, what are the things you can do to begin the process?

The most important first step is to make it doable – maybe focus on one or two trades in the first couple of weeks – the ones that stand out.  You want this to become part of your routine because, if it feels too much, then you are unlikely to stick with it.

Make it easier for yourself – write a series of questions to answer in your journal so that you just need to fill in the gaps. For example – what was the trade plan, how was I feeling, what was I thinking etc.

You may want to set up 2 distinct clusters.

Most Successful

Solution patterns

Least Successful

Problem patterns

Simply put, how do you consistently do more of the former and less of the latter.

Crystalise what you are doing right and do more of it.

Coaching Yourself

Ideally you want to be able to turn this new data into action points so that you can add a 4th column after ‘Consequences’.

The new column will be about how you are going to change. Think about what you might say to someone else who did this. Elaborate – what could you have done differently – what do you need to be aware of next time and how can you change the outcome. Analyse it as if someone else was doing it.

Find a specific goal – what are you going to do/not do in a specific situation next time. Set one new goal every few weeks to focus on.

As previously mentioned, it is important that the journal has positive content. Think about what happened when you were trading at your best. For example – ‘the market came to me’, ‘it felt easy.’ Then ask yourself what behaviours, feeling and thoughts led to that.

It’s All About The Process

“We perform at our best when impelled towards positive goals” – Maslow

Keeping a journal will enable you to focus on the entirety of your process, your playbook.

If you know where you are and where you would like to get to, then you can create positive goals that give you a sense of direction.

There are two processes you will look to improve:–

  • How you trade the markets technically
  • How you interact with the market

Both processes should be constantly evolving. The market is always changing and so should you.

Process vs Outcome

Of course, P&L is important but what would make your trading day a success even if you don’t make money? Instead of only focussing on P&L targets, start to focus on process goals.

Sometimes the set up and execution are perfect, and the trade loses money. Sometimes you will do a revenge trade on a whim and make back all your losses.

You could call this just luck, but over time, good or bad luck should feel irrelevant if you are just focussed on the process.

You can begin to incrementally improve by immersing yourself in the process.

Your goal is to trade well, not make money. If you shift your focus, then you start to reduce the emotional impact of what you are doing. You become an observer and start to detach from the noise in the market.

Start off by breaking trading down into component skills and set targets for them one at a time. Decide what is the difference that will have the greatest impact on your trading – it should be specific enough to lead to concrete actions, so you can work on it daily. One thing to do more or less of – for example taking a break after a losing trade to reset or reducing size if you are on a bad run.

 

Thinking about your process will lead to develop and crystalise your own set of rules.

Rules 

If you stick to rules, they will become habits – so what are your current trading rules?

You need to constantly evolve your own distinctive outlook and methods on how you trade the markets.

Rules are the bridge between behavioural patterns and acquired habits. Mental rehearsals plus rules are checks on impulses. A rehearsal can be something as simple as “how will I talk to myself when I am 50% to my target?”

The most inconsistent trader is the one with the loosest rules.

For added impact attach emotional consequences to breaking the rules – ‘if I break it I know that I will feel x and I don’t want to feel that way.

Rules can be developed for any aspect of your work including: –

  • Position sizing
  • Limiting losses
  • Adding to existing positions
  • Where to stop/limit losses
  • Entering/exiting positions
  • Preparation for the day/week
  • Diversification of positions

I’m sure you can think of plenty more – but it is vital that you develop them yourself so that they are congruent with who you are as a trader. 

Sticking To The Plan

The greatest enemy of effective change is relapse – constant improvement requires discipline.

The road to change is at least a 5 step process –

  1. Unconscious bad behaviour
  2. Awareness
  3. Commit to change
  4. Some lapse
  5. Automatic good behaviours

Being able to get back on the horse after you lapse is the most important aspect of any type of change – you will inevitably sometimes fall back into old bad habits.

Initially you will need to accept the co-existence of old and new behaviours, so focus on only 1-2 changes. Perhaps start the day with a positive change – even a reminder of all the rules that you intend to stick to that day.

Don’t jump in too quickly – don’t try to focus on too much at once. Slow steady progress is much more likely to stick.

Summary 

Imagine what kind of trader you want to be – more disciplined, more comfortable with risk, learning from mistakes or less driven by emotions etc. Starting to journal will lead you on that path. You will become aware of what is getting in the way of you becoming that trader.

Once you know what needs to change then you can start to develop your playbook. Instead of being immersed in the noise of the market and the resulting feelings and actions, you can start to incrementally work through the obstacles to success.

The markets are a constant, non-stop psychological challenge. Journaling will give you the best chance to meet that challenge.

Phil Bergman