Day traders invest their money multiple times a day for buying shares, forex pairs, commodities or cryptocurrencies. But why should day traders track their trades and keep a trading journal?
These days, most of our expenses are tracked. For example, using a credit card in grocery stores tracks the costs for each purchase. Buying things online within a registered online retailer account does not only track the payments; you also have a list of previously made purchases in your account.
All that information can be used to analyze the data, look back at previously made purchases, and optimize spending. And the same benefits are archivable for investment and day trading activities by using a trading journal.
What Is a Trading Journal
A trading journal tracks all day trades and categorizes them based on your individual needs. It tracks the trades asset, such as the stock symbol, price per share, number of trades shares, the time, stock exchange and many other transaction details.
Traders can also make notes about their emotions, the reason for the trade, and thoughts about the trades for later reference. Every user can expand or reduce the data points collected. Professional day trading journals use that information to generate income sheets, performance charts and plot the trades on price charts for historical reference.
Why Day Traders Need a Trading Journal
Some day traders execute hundreds of trades throughout the day, making it hard to conclude specific learnings made during the day. Which type of trades worked best? What was the most effective day trading strategy?
Why did particular strategies work today but not yesterday? Which market behavior has an impact on what type of strategies?
A well-kept trading journal can answer all those questions.
A trading journal helps to:
● Visualize historical performance in an easy-to-understand way
● Set's the foundation for future investments and trades
● Allows the trader to fine-tune trading systems and strategies
● It helps to identify impacts of the financial markets but also of the own mentality
Types of Trading Journals
Notes on Paper
Traders can start making notes on paper. This is the very first and easiest step of starting a trading journal. The notes can begin before the first trade get's executed. How do you feel today? What is the plan for today?
Write down whatever comes to your mind before the trading day starts.
While a paper trading journal often does a decent job for investors, it gets less valuable when many trades are executed due to the distraction from trading while writing the journal.
Use a Spreadsheet
Using a spreadsheet via Google Sheets or Microsoft Excel makes the documentation process more efficient. Traders can pre-define specific columns, pre-defined categories in down menus and partially automate the process of tracking trades.
It might feel less personal since there is no handwritten notice anymore, but the benefit will be more meaningful than the notes on paper. The date can be plotted automatically, the buy and sell category can be selected via a drop-down, and all trading strategies can also be categorized via a drop-down menu.
Completing one line per trade can be quickly done within seconds. The most significant benefit of using a spreadsheet is that many analysis and reporting functionalities are already integrated.
Trading Journal Software
Tracking trades on paper works best for investors executing a couple of trades per month. Using a spreadsheet is an excellent choice for swing trades executing up to 10 transactions per day. But what to do when hundreds of buy and sell orders are executed throughout a trading day?
In this case, day traders need a professional day trading journal that automatically tracks all trades.
Such day trading journals can be connected to the brokerage account via API to automatically pull all trade execution data. There is no need anymore for the trader to fill out any trade execution relevant information. Everything get's sorted, categorized and visualized automatically.
A professional day trading journal can be used to analyze the best-performing methods, most effective trading times, efficiency of long and short selling strategies, and more with a mouse click. It can process hundreds of trades per day and shows the results in graphs or tables. Traders can then make notes within those visualized results, conclude learnings and use them to improve their trading.
A trading journal helps track trades, optimize trading and investment strategies, and keep control of trading performance. Those who track and analyze their trading behavior gain control of their trading and use the data to get more efficient.
Making notes on paper or using a spreadsheet is an excellent way to start with little to low expenses. However, a paid trading journal makes sense once the number of trades increases and the costs stand in good proportion relative to the trading account size.