Thursday, April 10, 2008

The Importance of Keeping a Log


How many times have you read a book or a post telling you to keep a trading log. But you don't. Or it isn't consistent or some other excuse.

The reason I believe that most traders don't keep a log (remember most traders don't make money either) is because it requires discipline. And it requires that you confront your trading - warts and all.

I've posted a copy of today's trading log for the ER2 and YM. You'll notice that there are 2 trades that shouldn't have been taken at all! Also you'll note I calculate my average winner, average loser, and my winning %. That tells me my expectancy. Also all my profits and losses are denominated in R values (that's risk values) not ticks or dollars. This keeps me honest. If I risk 20 ticks to make a 2 tick trade then I don't get "rewarded" for that. However if I make a 20 tick trade with a risk of only 2 ticks then I do.

By the way thanks to "Ontariodave" for the inspiration for the grading system you see on this trading log. The idea is that for each of my trading components: 1) signal, 2) mechanics, 3) Position Sizing, 4) Trade Management, 5) and Exit mechanics I get a grade - just like school. Depending on how I handle each of those components. So at the end of the day I can quickly evaluate where my weak points were. Today I had trouble identifying valid signals. It was tough - we were in a trending market most of the morning (and this is a methodology that looks to fade breakouts).

Another thing I'd like people to note (just as Brett Steinberger says in his book "Enhancing Trading Performance" is that good traders will take that 5th attempt at something even though they've had several losers in a row. Inevitably, that is when I have my biggest winner (note the 5R winner at trade 8 after being -4R on the morning).

Good luck with your trading and I hope this inspires you to keep a trading log or improve your existing trading log.

5 comments:

Pip Wrangler said...

It is so true a trade journal really will keep you honest with yourself in your trades. I am a full time trader and trainer and keeping a journal is something I recommend to anyone who wants to get started or is already in the Forex market. One of the most straight forward reasons is because if you aren't tracking your losses you will make those mistakes again. Of course on the flip side if you aren't tracking your successes you can't make them again.

thelonelytrader said...

Lordy T: Why are you helping these people? Let the course and system hawkers do it for you. You got a good thing going man...

(This is "tongue-in-cheek", of course...)

Lord Tedders said...

Lonelytrader,

The good news is that 95% of them will never listen. I'm not at all worried about anyone "stealing" my secret lol.

Lord Tedders

HPT said...

Nice post LT

GATor Trader said...

...reading this a bit after the fact, but must conver the importance of both a trading log that Lord Tedder spoke of, and also keeping some sort of Trading Log/Journal/Spreadsheet.

What you also need to know is how your specific strategies & timeframes are performing, not to mention the specific performance you are getting trading the different Currency/E-mini symbols.

If you need an inexensive way to track all this (and more), you may want to visit www.TradingSpreadsheets.com to see if the Product can help you out in your trading.

Keep up the great commentary LT !