WHY do we as traders need to keep a journal?
With a balance of self-discipline and cognitive flexibility, rules can be applied to enhance trading performance.
This self-discipline includes:
1. Start every day fresh. Think of a mantra : “There’s a bullet coming toward my head today, and I’ve got to figure out where it’s coming from and how to stop it.” This mantra can bring down overconfidence, instill humility and encourage preparedness.
2. Invest an amount of money that is comfortable. If we invest on money that is on the line, or what we stand to gain, then judgment will be impaired. When emotions become overwhelming, ‘throw a maiden in the volcano.‘
3. Plan and Invest :Linda Bradford Raschke counsels, “Know what you are going to do BEFORE the market opens.” Mark Cook remarks: “Planning is the objective part of trading. Start with the worst case scenario and work from there.”
4. Learn from past mistakes. Keep a psychological journal. Journaling is the most commonly prescribed method as trading psychologist Dr Brett Steenbarger points out. Keeping a decision journal is an important part of a trader’s daily training and practice. While athletes exercise their bodies and hone their physical techniques, investors need to be aware of defects and advantages in their mental game. If athletes must spend hundreds of hours in practice and training for each hour of actual competition, journaling process may seem excessive and time consuming, but this is the price traders have to pay.
Some Questions for template of Psychological Decision Journal:
1. Pre-decision : What are my qualitative reasons for investing in this security? What is my level of confidence in this decision? What is my advantage? What objective changes in conditions will change my decision? What are my specific criteria for a buy/sell?
2. Post-decision : How am I feeling about the pre-outcome?
3. Post-outcome : Was it accurate ? Any flaws in the decision process? Can I find patterns to compare with my previous decisions? Did I deviate from my investment philosophy? What were the most successful aspects of this decision.
This psychological decision journal template should be used in conjunction with a spreadsheet journal with quantifiable statistics. They include style of trading, eg swing trade, intraday trade, long-term position etc. Also stop boundaries for both time and price and objectives including expected risk/reward probabilities, number of losing and winning trades, to find evidence of loss aversion.Biases towards periods of favorable sentiment can be detected on both templates BUT by dragging this out into the light of day, one can then try to solve the problem/s to become a better trader.
ANA aka IDKIT