4 Ways to Learn Your Trading Type
Okay, so you get the point that a trading journal can be effective. But how can you boost your potential for optimal success with it? Here are some key tips:
Structure Your Trading Routine
Trading rewards routine. You’ll probably get the most out of your trading journal if you have a well-structured trading routine.
Be consistent with what you do as a trader. For example, waking up early is a great routine to adopt. This can allow you to get errands and tasks out of the way and gives you time to do some research so that you’re ready to rock and roll when the market opens.
That’s just an example, though. Since many traders are starting out while also attending to a full-time job or other responsibilities, you need to figure out what type of schedule works for you. Choose a routine that works with your schedule and that you can stick with.
Making a routine, and making a trading journal part of your routine, can help you make the most of your trading career. Be sure to use your trading journal even on days you don’t trade, and make notes of why you chose not to take a position! This can be very informative, too.
Analysis of the Market
The more trades you track, the more data you amass, the more you’ll learn, and the quicker you’ll learn it.
By recording your trades, market observations, and overall thoughts, you’re not just learning from your own mistakes and successes — you’re also gaining an inherent sense of how to perform market analysis.
For example: You may notice consistent losses or gains in a particular industry or sector. This can clue you in on trends in the market that you otherwise might not have noticed.
When you see what’s working and what’s not, it can allow you to be more targeted in your market analysis.
The Steps to Analyze and Record Your Own Setups
A trading journal can assist you in refining your own setups. Here’s how it works:
1. Find the Setups to Trigger Your Entry
What’s the ideal setup to trigger your entry into a trade? Your trading journal can help you figure it out.
You should always go into every trade with a trading plan. But if, for example, you begin to notice that you’re entering trades too soon or too late based on your trading journal, you can likely begin to gain the bravery to try out different timing.
Armed with your trading journal, you can help determine the setups most worthy of triggering your entries.
2. Market Insight
By recording your own setups, you can also gain insight about the market at large. You can begin to see market trends and how they might affect your setups.
As a trader, learning to understand the market is vital because it helps keep you nimble. The market is ever-changing; the same setups that work in one sort of market condition might fall flat upon an economic shift. Understanding the market can help you navigate and acclimate.
3. Determine Appropriate Lot Size
According to Economic Times, “In the stock market, lot size refers to the number of shares you buy in one transaction … The theory of lot size allows financial markets to regulate price quotes. It basically refers to the size of the trade that you make in the financial market.”
With price regulation in place, you as an investor can always be aware of the number of units being purchased in a contract, and can determine the price paid per unit.
Be sure to keep track of what sort of lot sizes you’re dealing with in trades, as this can help you decide what types of approaches to take in the future.
Many traders aspire to be one type of a trader or another. However, one of the biggest things I’ve learned as a teacher is that you’ll probably naturally gravitate toward specific styles of trading, and you shouldn’t force it.
Rather than chasing what’s trendy or what you see other traders doing, focus on the style of trading that leads you to profits, whether that’s taking long or short positions.
Your trading journal can help you determine what types of trades are best suited to you by helping you figure out what has already earned you money. Don’t be loyal to a position — be loyal to profits.
Stop and Profit Placement
In many ways, trading is a probability game.
However, since there are a lot of moving pieces at work, it’s incredibly hard to get it right all of the time. A trading journal can help you implement some tools to maximize your stop and profit placement.
Let’s examine some specifics …
Cut Losses Quickly
Go ahead and ask my students and they’ll tell you: my number-one rule is cut losses quickly.
Personally, I prefer to trade scared. I will pull out of a position sooner rather than later, even if it means fewer profits. I’d rather be safe than sorry.
A trading journal can help you out with determining when you should cut losses. If you notice that you’re constantly losing, journaling can help you know how to cut losses quicker. Or, if you notice that you’re constantly checking out too soon, you can perhaps begin to gain the bravery to stay in the game a little longer.
A stop loss order is a type of order you can place with your broker wherein you’ll sell the security when it reaches a particular price.
While stop losses are perhaps most strongly associated with long positions, they can also be used with short positions. In that case, the security would be purchased rather than sold if it reaches a certain price.
Your trading journal can help you begin to zero in on appropriate positions and how to approach ideal stop losses. It can help you effectively implement mental stops as well.
Record the Profit or Loss from Each Trade
Every time you make a trade, make a detailed entry in your trading journal about the specifics, including the profit or loss from each trade.
Make notes of your entry and exiting positions, how much you risked, and the resulting profits or losses. As the information collects over time, this can help you determine what your sweetest setups are so that you can begin to focus on attempting to replicate the profits you’ve gained in the past and avoid the losses.
I have just a few more things to cover with you with regard to trading journals. There are 5 things you definitely need to be sure you’re keeping track of — things you might overlook or think you’ll remember on your own.
Stick with me tomorrow for the final installment of my trading journal guide.
— Tim Sykes
Editor, Penny Stock Millionaires