How To Use A Trading Journal To Find Consistency - Bulls on Wall Street

How To Use A Trading Journal To Find Consistency

You will never find trading success without using a trading journal. If you don’t document your trades, you will not be able to learn from your mistakes and grow. We thought it would beneficial to talk about how you should use a trading journal to find success. Here are 3 things new traders must track with a trading journal to become profitable traders.

Track Every Trade You Take

At the end of every trading day, you should record and reflect on every trade you took. You can use software like Tradervue or Edgewonk to upload your trades from whatever broker you use. They will have execution charts that show you all of your entries and exits. Seeing your execution charts will help you understand what you are doing wrong.

Notice patterns in your trading. Are you chasing your entries? Are you selling way too soon and not being patient? Do you keep jumping in and out of trades because you are scared and over-sized? Always focus on the bigger picture trends you when you are studying your data.

Look at your losing trades and figure out the common mistakes, and then eliminate the behavior that is causing them. Look at all your winning trades as well, and figure out what they have in common. Identify what patterns of behavior and setups your best trades had, and cut out everything else that isn’t working.  

Track Every Different Setup You Take

When you upload and record your trades, you need to label the setup that you took. This is especially important if you are a new trader who does not have their niche setups established. Are you consistently winning on earnings breakout plays? Are you constantly losing on parabolic shorts?

Trading is a game where generalists do not make any money. When you are starting out, you need to have just one or two go to setups that you can rely on to consistently extract income from the market. Tracking all the setups you take in your trading journal will show you what setups you perform best and worst on.

Track Your Profit Loss Ratio

Your profit loss ratio and your win rate are your two most important metrics for determining if you are profitable trader. The risk vs reward on your trades matters just as much as your win rate. If you have a 90% win ratio but your profit loss ratio is 1:10 (meaning your winners are 1/10 the size of your losers), you are not a profitable trader. However if you just have a 40% win rate but your average profit loss ratio is 3:1 on your trades, you will be profitable in the long run.

Do not stress about just having a high win rate. Focus on developing the patience to let your winners run so that you can have a good profit loss ratio so your win rate will not matter as much. This will also take a lot of the emotion out of losing.  You know that as long as you cut your losses where you are supposed to, you will be profitable in the long run. Never focus on day to day results when you are tracking your trades. Focus on your weekly and monthly performance will show you if you are heading in the right direction or not.

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