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In previous articles we have discussed in detail the merits of a trading journal in offering evidence for both:
a. How well you are following a trading plan?
b. How well your trading system is serving you? (assuming you are already following a trading plan)
We have also outlined the importance of “closing the circle” and making sure you review journal data and action plan to make any amendments that would be of benefit.
If you are in the position that you have “jumped in” and made a trading a journal a reality in your trading, next level journaling aims to increase the quality of information, where you can optimise those things you are doing well and work on those things that need improvement.
This, in essence, is all to do with asking the right questions of the information you have, so you can continue to make evidence-based judgements as to what type of trading suits you best. The reality is that no two traders are the same (even if using a similar system). Your challenge is to find YOUR best approach that works for YOU. And subsequently, mirror this on an ongoing basis.
Here are THREE potentially “game-changing” questions you could ask of your journal data which may give clues about “best fit” behaviour for you as an individual.
#1 Which trading direction works for me?
There is no doubt that some traders have results that seem to be better going “long” and others trading “short”. The other possible outcome, of course, is that it doesn’t matter, and you perform equally as well irrespective of direction.
Measuring the results of long versus short trades will give you this answer. Let’s assume there is a noticeable difference. After obtaining this evidence your choices are twofold. The root cause of this may either be:
a. You have a simple aptitude for trading in a specific direction and so can mirror this with all future trading.
b. It may be that your system works well for going in one direction and needs adjustment with the other. In this case, provided you are not comfortable sticking to (a) above then of course you have the evidence to refine that part of your system that appears to require adjustment.
#2 Which timeframe works for me?
Similarly, we can look at whether specific timeframes work better for you as an individual trader. Questions about optimum timeframes are some of the most frequent that we receive on both ‘Inner Circle’ and the ‘First Steps courses. We have written about this topic before, the conclusion being that it is your individual circumstances that are most likely to dictate which timeframe works best for you.
Again, the power of a journal is that you can easily come to an answer, and so mirror that going forward (of course, this is dependent on you recording this as part of your journal process).
#3 Which trading vehicle suits my trading style?
Many of you reading this may be trading multiple vehicles e.g. Forex, Index CFDs, Share CFDs, commodities, options. There are obvious differences not only in how these various instruments are priced but also influencing factors on how they move.
Using a similar approach to the above, you can easily identify which vehicles are working for you. As with exploring trading direction the reason for this could be your characteristics as a trade or the robustness of your system in trading different vehicles. So, the choices are the same – you can allocate a larger proportion (or even all) of your capital into trading the vehicle that produces better results or of course review and tweak the system for those vehicles with less desirable results.
OK, so these are your three starting questions, that may help you find a trading style that is best fit for you. However, before we finish, it is worth offering a couple of additional pieces of guidance when doing an exercise such as this.
a. You need a critical mass of trades to make the data meaningful. (there is little evidence that can be gained from a couple of trades in any category). There is no definitive number to what this may be but logically perhaps 15-20 will suffice in the first instance.
b. Compare like with like. To make things meaningful you need to reduce the number of actors that may skew your results. As a start point it would make sense to:
i. remove any trades where you clearly didn’t follow your plan,
ii. Unless analysing #3 above it would seem logical to compare within one trading vehicle e.g. just your forex trades.
Finally, we would love to hear your feedback on journaling and how it has/has not worked for you (or even problems) you have had getting started. Drop a line a firstname.lastname@example.org with any feedback you would like to share.
The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Past performance is not an indication of future performance. Go Markets Pty Ltd, ABN 85 081 864 039, AFSL 254963 is a CFD issuer, and trading carries significant risks and is not suitable for everyone. You do not own or have any interest in the rights to the underlying assets. You should consider the appropriateness by reviewing our TMD, FSG, PDS and other CFD legal documents to ensure you understand the risks before you invest in CFDs. These documents are available here.