This article on Keeping a Trading Journal is the opinion of Optimus Futures.
A trading journal provides an unbiased review of your trades and performance.
It’s one of the few tools that touches on many important keys to long-term success: education, strategy, discipline, and practice.
Yet, many traders aren’t sure where to start or what it should look like. Even if they have one, most don’t know what they should get out of it.
Those that actually start journaling struggle to stick with it.
In this article, we explain what a trading journal is, what it should do for you, as well as a guide on how to create your own.
Plus, we’ll discuss Optimus Flow’s free automated trading journal and its advantages over many manual methods.
What is a trading journal?
Trading journals are like mini diaries for your trading activities.
In its simplest form, it can be a transaction list of your trades.
More complex ones collect a wealth of information from relevant prices, setups, market conditions, free-form thoughts, and more.
How you set it up depends on what you need to effectively measure, analyze, and improve your performance.
For example, if you trade futures, your futures trading journal should include all the relevant information including
- the entry and exit prices,
- percentage gains,
- profit or loss, symbol,
- and even the date of the trade.
As we’ll discuss in more detail later on, the problem with offline methods is their accuracy and reliance on your skills.
Manually inputting your information leaves room for human error. Plus, if you don’t understand how to use excel formulas, you can’t get much out of the program.
That’s why automated trading journals are ideal for both new and experienced traders.
The Benefits of Keeping A Trading Journal
Trading journals offer several benefits we want to highlight.
Remove The Emotional Component
Used correctly, trading journals limit subjectivity and bias, laying out your past performance as it happened.
A common example is overtrading. It hits everyone whether you have a few months or a few decades of experience.
Trading journals help us identify when this happens by showing us exactly how many trades and/or how much risk we’re taking during a certain period.
Quickly Filter & Review Trades
For active futures traders, it can be difficult, if not impossible, to sift through hundreds to thousands of trades.
This is where automated futures trading journals like the one provided by Optimus futures are helpful.
Being able to compile statistics and review your performance is just one step. Traders then need to cut and filter the data to see if certain strategies or categories work better than others.
For example, in the sample table below from Optimus Futures’ Trading Journal, the user can break down performance by individual symbols.
Improve Trading Performance
Most of us focus on the trade at hand, and rightfully so. We want to make sure we execute each one properly.
But taking a step back can illuminate areas of opportunity and highlight risks.
This is where trading journals offer the most benefits.
They help us identify and understand patterns in our trading, whether it’s opportunities or risks.
For example, in the Optimus Flow Journal dashboard below, we can see that based on a study of time and day of the week, the profitability for this trade is highest after the open but before lunchtime.
Tracking the Performance Metrics That Matter Most
Trading journal metrics come in two flavors: Inputs & Outputs.
Inputs are the data points you need to enter to create the outputs.
Outputs are the measurements that analyze your performance.
The list below is extensive, but by no means exhaustive.
- Entry & Exit Price – Trades can have one or more entries and exits. If you log multiple entries and/or exits, make sure you can tie them together.
- Stop & Target – Each trade should have a stop and target price or zone. These help us compare our risk to our potential reward.
- Position Size – Your position is a combination of the number of shares, lots, or contracts you take as well as the notional value.
- Direction – Each trade should identify whether you’re going long, short, neutral, or some other combination.
- Strategy – If you test multiple strategies at once, make sure to identify which one is used on each trade
- Date and Time – Using dates and times can help you find patterns within the trading day, week, or season.
- Charts – Charts aren’t always necessary, nor do they actually give you an output. However, if you can add in a quick snapshot, it can help you quickly refer back to a setup or pattern you might have seen.
- Win-Rate – This measure tells you the percentage of trades you win. You take the total number of winning trades divided by your total number of trades.
- Risk/Reward – Your total potential losses compared to your total potential rewards, along with win-rate, helps determine what our average expected value should be for each trade.
- Expected Value – Expected value tells us what we should expect to earn on each trade on average if we were to perform the same trade over and over.
Now imagine getting paid $1 for guessing correctly and lose $1 for every incorrect guess.
On average, you would make $0 over time.
But if you got $2 for every correct guess and lost $1 for each incorrect guess, you would expect to make 50% x $2 – 50% x $1 = $0.50 per flip.
While you can only make $2 or lose $1 on each flip, if you performed the experiment thousands of times, your average profit per flip should head towards $0.50.
- Profit Factor – The profit factor is a simple measure that tells you how much you made in total for the amount you risked in total. You take your total profits and divide it by your total losses (both are set as positive numbers). If your profits are equal to your losses, your profit factor equals 1. Less than 1 means you lost money overall, and greater than 1 means you made money overall.
- Average P&L – This works similarly to the expected value. The more trades you have, the closer your average P&L should get to the expected value.
- Average Winner/Loser – Knowing your average winner and loser helps us see whether you profit over time by a few big winners or a bunch of small ones.
- Biggest Winner/Loser – It’s good to compare your biggest winners and losers to your average winners and losers. That way, you can see how wide of a range you could expect on each.
- Profit Per Dollar of Risk – We put more capital to work on some trades vs. others. To compare them, we want to see how much we make for every dollar we risk.
- Standard Deviation – Although complex to calculate without a spreadsheet, standard deviation helps us see how much our results swing around the average. Along with drawdowns, it can tell us how much capital we can risk statistically without worrying about blowing up our account.
- Max/Average Drawdown – Drawdowns tell us how far our account dipped at any given point, whether the losses were realized or not. We can look at the maximum that occurred, the average, and the standard deviation to determine how much capital we can risk statistically without worrying about blowing up our account.
- Holding Time – We want to know our hold time to ensure that we are earning enough profits to tying up our capital. 100% on a trade that takes one day is quite different than one that lasts an entire year.
- Net Profit – Your total profits minus your total losses and commissions give you your net profit. At the end of the day, this is the most important metric.
How to Keep a Trading Journal
Keeping a trading journal comes down to three key steps:
- Identify important/useful metrics – Use the list we provided above or add in your own. Whatever metrics you use should tie directly into the benefits we listed earlier.
- Update it regularly – Automated trade journals take care of this for you. Otherwise, you need to set aside time to log your trades and ensure you captured all the relevant information.
- Create a review schedule – Once you have your trading journal, set time aside at regular intervals to review and analyze your performance. You can do this daily, weekly, monthly, or quarterly.
How Automated Trading Journals Give You An Edge
Handwritten journals can be useful tools to collect our thoughts and ideas.
But for analyzing trades, we need the help of computers.
Manual spreadsheets are a great start. But unless you know how to program them, you won’t realize the full benefits of a trading journal.
Additionally, manual trading journals require more human intervention, inviting a greater chance for entry error.
Like the one provided by Optimus Futures, automated trading journals help traders quickly collect and analyze their trades and performance.
Think of it as having your own big data tools for trading.
As shown below, main dashboards provide a snapshot of your trading, letting you quickly analyze your performance.
Optimus Futures takes this a step further by creating ‘One-Click’ journaling that logs your trades in real-time.
As we discussed in the benefits section, robust dashboards such as these let you then cut your data in many ways.
Using the same sample data from that section, we can look into our one profitable symbol, M2K, and dig deeper into our performance there.
Optimus Futures journal also has the ability to upload trade spreadsheets from 3rd Party Platforms such as R | Trader Pro and Sierra Chart (with more coming soon). So the journal isn’t restricted to Optimus Flow users only.
And if you miss logging a trade, you can always go back and upload it later.
Make Your Trade Journal Work For You
If you don’t have a trade journal, consider starting one today regardless of the method you choose.
For those who already have one, make sure you’re getting the most out of it.
Use our list of metrics and ideas to run an audit of your journal and see if you are missing key measures.
Trading futures and options involve substantial risk of loss and are not suitable for all investors. Past performance is not necessarily indicative of future results. You should use ONLY risk capital when trading Futures. Please consider if Futures trading is suitable for your financial situation.