Profitable Traders Keep A Journal
Alright, everyone, and welcome to another episode of Line Your Own Pockets. Today, we're gonna follow-up on an episode we did recently where we're talking about kind of the benefit of not automating some things. And the main thing that kept coming up over coming up over and over again is journaling. Right? And the fact that doing some things manually will certainly help your trading.
Michael:And we talked about in that episode that I think not just one episode. I think we could do a couple episodes on journaling, but we're gonna dive into the basics of and I think the importance of journaling when it comes to how it can help your trading. I think this is one, not only for the systematic traders, but for the discretionary traders, and maybe even more so for those discretionary guys. Dave, what do you think?
Dave:Yeah. It's a good thought. Yes. Certainly, all traders should be doing it, and I like the topic because there's a bit of a confusion about what a journal is among traders. Like, you know, I it's it's without a doubt the most important thing you should be doing.
Dave:Like, I I I can't tell if somebody is gonna be profitable if they keep a journal, but I can assure you, you will not be profitable if you don't keep a journal. I can just old. So I can just tell you that. Yeah. There's very few traders that can do it without keeping score.
Dave:In fact, I I don't know if I can think of a single trader that I know that isn't profitable, or or that, you know, doesn't keep a journal and is profitable. I mean, it's just there's just no choice about it. You have to keep score. And that it's the same thing with, so as you know, I I I play poker also, and some of my friends will get poker coaches. And I hear the same thing from poker coaches.
Dave:If you're not keeping score with a journal or keeping track of your results, you're just not making money. They it's just very clear.
Michael:It's a little off topic. How are you doing that with are you do you actually have a notebook? And you're just after every game, you're going somewhere and just just writing stuff. It just seems like you play five or six games, you would be completely lost by the end of it. You'd have to take a break and go and write something each time.
Dave:Yeah. Well, you, you can do it by session. So when you sit down, you you you buy in. And then if you lose money throughout the and and have to buy in again, you keep track of that. At the end of the session, you keep track of it in a there there's, apps and software you can use to keep track of, poker winnings.
Dave:It's the same sort of concept. You're not keeping track of every hand, although you can. If you're playing online, you can do that. So it's in that way, it is similar to trading.
Michael:Well and I guess that leads into that's the the first thing we can talk about is the the ease of technology. I think journaling now versus journaling back in the day. I remember, when I used to sit down at the the end of every day at the prop firm, we're talking twenty years ago almost at this point, that was you how you generally have to write down on a on a physical piece of paper each thing, and then you'd get home, and then you'd try to translate that into some sort of spreadsheet or workbook or or something. And now there's just so many different softwares and so many different choices. It's one of those things that I think you could almost have made an excuse before these things existed for not journaling because the amount of time it would take.
Michael:But I think that's one thing I wanna talk about right away before people tune out because that's the biggest complaint or the biggest reason that I hear from people about why they don't journal. Say, oh, you know, it takes too much time. Yeah. Just talk a little bit because you wrote one of the softwares for it of all the different ways you can you can help automate some of, if not all of, but some of the the process to kinda speed up the time to do to do your journaling.
Dave:Yeah. And I think I think a lot of traders have a complete misconception about what a journal is. I still hear this even to this day where, you know, I'll say one of the first questions I ask traders that come to me for help is, are you keeping a journal? And a lot of them say, oh, yeah. Yeah.
Dave:Yeah. I'll keep a journal. You know, I I, you know, I take screenshots of my trades, and I, you know, write down on this on, you know, say what what what I was thinking, what I ate that day, and all this stuff. I'm like, that is not a journal. Like, what I'm talking about is probably a bad name for it.
Dave:There probably could should be some other name for it. But but what I what I mean when I say journal is a database of your trades that you can go back and look at exactly what you did for every trade. So that means when you took the trade, including the time of day, the price you got in at, the price you exited, the book but by by far, the most important aspect of that of recording a trade that most traders don't do is you have to put the reason you took the trade. What strategy did this trade come from? That's super important, and a lot of people just don't do that.
Dave:They think it's good enough to do without it. But that that is it it puts you in the habit of making sure you're you actually have a reason. I mean, you'd be surprised how many traders just don't have a reason to take the trade in the first place or they can't really quantify it. If you can't come up with a tag for the why you're getting into into the trade, you shouldn't be taking that trade in the first place.
Michael:Yeah. And that was actually the example I was gonna give. And and one thing that I found that was really powerful about journaling is I had a tag that was just called rogue trade. Right? So I had these are the setups that I'm I'm trying to play, and and this is right for my swing trading.
Michael:I have everything named. There's four different strategies that I use. And then I had one that was I just call it Rogue Trade. Just it's a great movie. Ewan McGregor, if you haven't watched it.
Michael:It's a great it's a great film. And the amount of time I saw that tag come up over and over again, it ended up almost being embarrassing. And it was almost like a daily slap in the face. And then, you know, like, we'll we'll talk about a little bit later is that when you have enough data, you can go back and you can just search for rogue trade and sum up all the trades from it. And it wasn't like it was catastrophically losing me money.
Michael:It just wasn't worth my time. Right? It it was it was that kind of thing. So the tagging, I think, is the the utmost important. And you can get, I think, fun with it.
Michael:You name your strategies whatever you want so that when you're going in at the end of the day, you have, certain specific strategies. But the kind of counter to that and the question I'd ask is, you know, systematic traders, it becomes easier to to name your trades because you should have this is the setup. You know, I've done some some amount of back testing. I've done some amount of forward testing. I know that I'm taking this trade for this specific reason.
Michael:When you're little more discretionary, how would you come up with tagging for if you're talking to somebody who is more of a a buy feel type trader, but they still wanna journal and and record, what would you suggest for that for that tagging process?
Dave:I think buy feel is a little too loosey goosey. Like, you gotta have a reason for taking it. It's not just like, hey. I got this feeling in my gut right now, and I think it's gonna work. You need to tie that back to at least a broad category of of trades that you typically make.
Dave:And I I think it's pro I agree with what you're saying. It's it's absolute it's more important to do this as a discretionary trader. So, just because if you're if you're automated, then you probably you've probably already gone through this process to figure out what strategy it's coming from. So Mhmm. But it's still it it's still very important to do for a discretionary trader as well.
Dave:And it's I it's probably even more valuable because it forces you to come up with a reason. That that would I it terrifies me to to think that I would make a trade by gut feel. That just doesn't compute, Michael. I I can't understand that.
Michael:Well, that's and that was kinda my point earlier for saying why I think, you know, even more for discretionary traders than systematic. Because at least if you're systematic, you will have some way to to backfill data if you really want to if you if you wanna do that. But when it comes to discretionary trading, and you're trading by some sort of feel, the second the moment that you wanted to take the trade is gone even for a couple days, it's just it's just completely gone. And and, you know, I know that's not huge to the target audience here, but, I think it's one of those things that the fact that it is so hard to journal as a discretionary trader should tell you something because it means that you can't you can't basket what you're doing into something that's that's measurable and and quantifiable. So then how can you be expected to reproduce that over the long run?
Michael:Because that's our our what we're looking to do. Right? You can take a a hugely discretionary trade and make a whole bunch of money off it and great, good for you. But how do you do that the next day and the next day and the next day after that? So, you know, I think that's one of those things that by forcing yourself, I almost think journaling is one of those things that can help you on the path to become systematic.
Michael:Because if you're forced to bucket your trades in some way and store the data for them, even if you're someone that's not, you know, a a quant like us who's gonna back test, you know, things for for ages and years and do machine learning and all that crazy stuff. At least you're starting to create your own database. Right? So I think that's gonna be an interesting place to go next. So if you're somebody who is is doing that, you're creating your own database of trades, what are the the absolute must record in them?
Michael:If if you're someone who's just getting started, he's never journaled before in a world. You're gonna say, these are the, you know, five or 10 things that you absolutely have to record with every single trade.
Dave:Yeah. So there's several things you should be recording, and this is the beauty of the online trading journals, which I like I've mentioned before, I created the first one.
Michael:Mhmm.
Dave:Because I knew how, I just knew how much easier it was gonna be for me because I I started out using Excel and keeping track of a journal that way. And I did that for a while, probably I don't know. I probably put 50 trades in there, but I realized quickly that, gosh, this is such a pain in the butt. And you can all this could be automated, and it'll, like, save all this data entry. So that's when I created a stock ticker.
Dave:And I still still to this day, I I the the online trading journals out there now still don't have the things that I had in stock ticker, which kinda makes me mad. But
Michael:get to work. Fill another one.
Dave:Yeah. I've thought about it. But, you know, this reminds me of let let me let me step back a bit when you were talking about discretionary, and then we'll go back to the actual components to record. I went through a stint as a discretionary trader twenty five years ago, and I kept track of what I was doing. And I don't know if you went through a phase like this, Michael, where you're taking trades, and then you go back and look to see like, when you have a losing trade, you go back and try to find the reason that it was a losing trade as if you could always find a reason.
Dave:So there there's this phase that you go through as a trader where you're all of a sudden, you realize, well, there's not a reason thing Yeah. Turned out to be a losing trade. Right? It's just it just was. There's nothing there's nothing about it that I could go back and look and have not taken it.
Dave:Right? So Mhmm. That's what I hear that that I'm always reminded that that period when I hear people talking about I keep I keep my trades in a a journal. You know, I write stuff down. I I, I like, basically, sort of a a not well defined process for journaling.
Dave:Yeah. So did did you ever have a phase like that where you thought there's a reason every I think every trader
Michael:does. Right? And it's, I always say that the moment that trading really turned for me is when I stopped caring about win rate. Right? And I think that's it's one of those when you're a new trader that is a % your entire focus.
Michael:And I don't know if it's a a pain avoidance mechanism or whatever. You're always thinking the question you're always thinking is, okay. How do I not lose there? Right? How can I remove these losing trades and and, you know, get my win rate from 60% to 70% to 80%, and you're starting to think that you can get these these massive win rates?
Michael:And I think a lot of that came from just trading for a long period of time, and a lot of it came from backtesting and realizing even if I really, you know, screwed with the numbers in in a way that was was not healthy at all, you can't really get 90 plus percent win rates in anything that is even remotely, inaccurate backtest. So, that, I think, was that moment where I'm like, okay. Well, now it's not about that. It's about, the the systematic process, which is I'm okay if I have a 40% win rate as long as in the long run, the risk reward, all the numbers, and everything on the overall trade end up making sense, then it's it's great. But, yeah, you need to I think every trader needs to get there, and it's funny because I talk to new traders all the time.
Michael:And that's still very, very common. It's saying, oh, yeah. I lost money on this trade. It it really sucked. And then, you know, the the systematic trader in me just goes, was the risk acceptable, like, what you're trying to do?
Michael:Was it a trade that you had tested for some period of time so you know it has a win rate? Then it's a good trade. I always make the joke that I could walk into more and I could slam my forehead on my keyboard and make $10. Doesn't mean it was a good idea. It just means that it Yeah.
Michael:It just worked out randomly.
Dave:Yeah. For sure. Alright. So let's go back to the the actual data points, like, the bare minimum data points that you that you should record.
Michael:Yep.
Dave:I think symbol, obviously.
Michael:Mhmm.
Dave:Symbol entry time, you know, that includes entry date and the time, exit time, number of shares you took, total profit, and the reason you took the trade. There's there might be a couple of other things, but those are the main Stop loss? Points. I think stop loss is probably an optional one, and and that's because well, I I highly encourage it.
Michael:Mhmm.
Dave:I I think some of the the journals out there don't don't support it, but I I I so I stopped I stopped just short of making a a requirement, but it's highly encouraged and definitely something you you should be doing.
Michael:Yeah. I I I think I'd go harder and say it's if your journaling software doesn't have it, you find another one. Because it's one of those what if you have a strategy? And and this might just be a little different for me as a swing trader. Because I have strategies where stop losses are rarely triggered.
Michael:Like, talking one in every 20 trades will a stop loss be triggered because there's, a time stop component and a a a trailing stop component that, again, 99 90% of the time probably gets triggered first. So but having that initial stop loss, that's what I have to measure my absolute risk on because that's the the risk that I was willing to take on the trade. So, yeah, I'd go as far as saying is if you're using a journaling software right now that doesn't have that, then you have to you have to jump ship. You gotta go to another one because it's I I think to do proper, like, our analysis, you you need to know what your your intended risk was on that trade.
Dave:Yeah. I agree. And and, the reason I stopped short is that's one of the things that is difficult to record. Like, you're gonna have to be manually recording that unless you have an automated system and and have automated software. Like, I created a stock ticker, and my my software will automatically track that by strategy and and record that, which is really cool.
Dave:So but if you if you don't have that set up, then I think it's more important to get your trades, You know, create a system for yourself where you're doing this, and then take the step to record that stop loss. So I think, you know, it's it's a bit of a leap because there is gonna be some more work there. So I I I think it's sort of a a judgment call. Like, if I I just know that some people aren't gonna do that. So if you're not gonna do like, I don't wanna make that a requirement, and then you a lot of traders just won't do it at all.
Michael:Well and I think we also always we're always touching on the difference between day and swing trading. Day trading is obviously gonna be much more work for something like that if you're taking, you know, 40 trades a day. Right? If you're taking a trade a day, it becomes a lot easier just to go and and put all that data in manually and and and tag it manually and do all that as well. So that just might be the difference, but I'm with you.
Michael:I I kind of look at journaling almost like dieting. It's one of those that nobody wants to do it, but you kinda have to. So I always when I talk to traders, Jade, if I'm a nutritional coach, I'll write up here. You eat this steamed broccoli every day and then and then chicken breast with no seasoning, and that's the best thing for you. But if they're not gonna do that, you have to say, okay.
Michael:What's the next best thing? So that might be one of those things with stop loss where you're saying, if if you can do it, then definitely do it. But if that's if you're gonna not journal because it ends up being too laborious to do all the work, then you gotta cut it to the absolute bare minimum and just just do it just to have something.
Dave:Yeah. Yeah. I I think that's true. The the other hard part about journaling is the payoff is on down the line. Right?
Dave:It doesn't you don't get a payoff immediately the first day you start journaling.
Michael:Mhmm.
Dave:It's only after some time goes by that the real value comes from it. So that's that that's another thing that makes it hard for people, and, you know, they could kind of sort of talk themselves out of it because you don't get an immediate impact or, you know, immediate benefit from it.
Michael:Well, it's the same. That's one of the reasons I use the dieting analogy, right, is that, you know, joke joked with the wife the other day. I cleaned up some stuff from my diet, and I'm like, I've been dieting for two days, and I'm still I need 225 pounds. What's going on here? And, yeah, it's the same thing where it's it's you're doing you're kinda making a promise to yourself that if I if I do this for long enough, which isn't measured in days, I would say it's not even measured in weeks, it's probably measured in months.
Michael:You're gonna get a real good data set that you can go play from. Now you'll see benefits, I think, along the way, but until you build up that that amount of data, and you kinda just have to have faith just, again, going on the diet program and saying, if I start to eat good tomorrow, I'm not gonna feel great. I'll probably feel better in a week. I'll probably look better in a month. And then in six months from now, I'll probably be, where I wanna be.
Michael:And I again, I think that you hit the nail on the head. I think that's the hardest part. It's that the immediate gratification is just not there. You're just doing something that you have to kinda be convinced, and and maybe this podcast will do it for you that if you start recording these things, it will it will start helping out. So so let's say you have those mandatory data points.
Michael:Right? When you got in, where you got in, when you got out, where you got out, I'd say why. And that's one of the ways that I've always phrased it is just the the who, what, when, where, and why kind of thing. Right? What are you trading and and for what reason?
Michael:So how far how much data do you think you need in order to really make good decisions to potentially change something that's from your trading? And what's the kind of top uses of journaling once you have the data? Like, will you okay. So you've done it. Good for you.
Michael:You got sick you got a couple months or a month of data or whatever. What are you doing with that data on on a regular basis to kinda help your trading?
Dave:Well, it's sort of, you know, when you look at your p and l, that's the way most people do this. If they're not keeping in general, they're keeping track of their p and l, at least, or at least they're looking at at the end of the day. That p and l number hides a whole lot of details about your trading that you wouldn't know about or would fly under your radar without looking at your trades in a journal. So, you know, there have been days that I've, made a lot of money, but one of my strategies didn't do well. And I wouldn't have seen that if I was just concentrating on that top line number.
Dave:I mean, the same is true, on days where I lost a lot of money, but I had some strategies that worked really well. And, overall, it was a very positive day even though I lost money. So the ability to go through and see which which strategies are really contributing to your p and l, that's really valuable, and that's gonna happen right away, which is which is good. The other really valuable thing that you're gonna be able to do eventually is compare your journal results to your backtest results. That's really you know, a reconciliation process for that, which which can be automated or can at least be, almost completely automated where you can generate that report really quickly in a way that gives you exactly the kind of data that you wanna see.
Dave:You can really see, well, is this strategy measuring up to the backtest close enough?
Michael:Mhmm.
Dave:Why is it falling short of the backtest? Is it is that is it an acceptable amount that it's falling short? And how can I make changes to my trades to make it closer to what the backtest is showing me? Like, how can I bridge that gap? So there's all sorts of things that a a journal will help you do in ways that you aren't really aware of right now or when you first start journaling.
Michael:Yeah. And I think that's the big one. I think that's the one that most people should kinda focus on from the systematic side of things. Right? Discretionary traders, they don't have that back to us to go off of.
Michael:But, and I think you've told a store a couple stories before where you had a system that wasn't doing at all what the back test was doing, and you wouldn't have known unless you went back and reviewed reviewed that journal. And I think, again, that's the the huge important part where, you know, we run the back test and then we start trading. Now for someone like me who uses, a little bit of discretion on entry on the swings because I have the time to do that because it's okay if I miss, you know, an hour of trading. I'm using my back test as my benchmark, and then I'm comparing that and saying, am I doing better than that, or am I doing worse than that? If I'm doing worse than it, then there's no sense doing what I'm doing in order what to wait for confirmation.
Michael:Right? I'm not adding any value. If I am doing better, then then, yes, I am adding value. And I think that is just huge. It's just going through and saying, there's nothing worse than having, a, I think not having that back test becomes really hard because you don't have that measuring stick.
Michael:You know? If the if my system lost 10% this month and I only lost 5%, like you were talking about looking at your p and l, you'd say, oh, man. I'm down 5%. That's an awful month. But then if you compare it to your back test and you're saying, oh, well, I'm doing better than it, then that's great.
Michael:And if it was the other way around, right, if I'm down 15% when the the system was down 10%, then I know there's there's something horribly going wrong. So I think, you know, using that as the self correcting mechanism that when you're getting unaligned from what your systems are saying, you can you can pull yourself back. Because, again, you'll never know if you don't have those three aspects of what's the overall back test doing, what's kind of the market doing, and then and then what am I doing, then you have no way to kind of pull yourself back in line to say, right, is this drawdown a normal drawdown? Am I deviating from my back test? And then what's going on?
Michael:So I think if for no other reason, you you have to have that data to do that reconciliation process and compare that as well. And while we're talking about this and while I'm hoping you to make your own trading journal, I haven't found a trading journal that does that part well. So that would actually save a lot of time. That's something that, for me personally, I just still do in Excel. I just download the trades from the journal.
Michael:I download the trades from the other one. I line them up and and and try to compare the difference, but just just while I'm getting business ideas the whole time.
Dave:Yeah. Well, stock taker used to do that. It you you could compare you could upload a backtest, and it would automatically do the reconciliation. So, yeah, I've got a process that does that now for like, there's an API for the journal I use, and then I can merge the backtest with that with the results from there. And then I can see, okay, where did I miss trades?
Dave:That's the first thing I look at is, am I missing winning trades? Those are huge. I mean, that could be very well could be the difference between the profitable strategy and not being profitable is missing those winning trades. So let's talk about tagging. You know, we've we we alluded to it before, the reason you're taking the trade.
Dave:Mhmm. That, you know, assigning a tag for, your trade based on the reason you took it. Now most traders kinda get carried away with assigning tag. And I have a
Michael:So by that, you mean too many, like, lots of tags? Or
Dave:They use too many. Like, the the what you what really, what you need is just a single tag for the strategy.
Michael:Mhmm.
Dave:So let let's talk about some other reasons you might wanna use a tag in addition to that. You alluded to one earlier, rogue trade. If this was a mistake, that's a good tag to add and worth doing. But you wanna have some you want to to not add a whole bunch of tags. Some people have the tendency to just add a whole bunch of tags that ended up being useless.
Dave:So what what you wanna do is create a simple process for yourself and sort of a protocol that you're gonna add a small number of tags and, to each trade if that's appropriate. So the the main one would be the reason you took the trade, the strategy, whether the trade was a mistake, and maybe one other tag, but probably not. Now let me give you an example of when I've used another tag, an additional one. This is back when I was trading a, discretionary system or, basically, a strategy that wasn't automated. It was very much a a system, but it wasn't automated at the time.
Dave:So I was trading a system that was based off the ten minute bars, and I would make the trade, as early as, I think, 09:50 and as late as 10:30. What I noticed was, hey. I think I could take some trades off the five minute bars using this exact same sort of setup. So it's basically the same strategy just on a different time frame. K.
Dave:And I started taking some of those trades, but I wanted to keep track of them separately. Still basically the same system, but just a different time frame. So what I started doing was if I took the trades off the ten minute bars, I would use, like, ten minute bars Mhmm. For attack. And then if I took the trade off the five minute bars, I would assign the five minute bars tag.
Dave:And so still, you know, the bay same, basic strategy name, but I had this additional tag that I was using because that that's something I wanted to keep track of over time. It wasn't you know, a lot of people will want to add, you know, like, maybe the industry that the tray you know, the symbol is from. Yeah. You're gonna be able to get that other ways in the future. Mhmm.
Dave:So you don't wanna use a tag for that. So this was something that I knew I wanted to be able to keep track of. There was no other way to get that information, so so I've dedicated a tag to that. And what I saw was it was actually really surprising because I remember when I first started taking those five minute bar trades, I had a couple really good trades, like, right off the bat. So in my mind, I was like, hey.
Dave:This works really well. Like, this this was a great idea. But it was only after I looked at a my performance by tag that those were actually losing money as as time went on and the the, the trades started to pile up. So it was only because I used that tag that I was able to see that and make an adjustment. I would not have seen that otherwise because in my mind, it was it was working so well because of those first couple trades that I made.
Michael:Yeah. And I I couldn't agree more. I will generally use maybe two tags, and and that'll be it. It will be, I classify them by strategy, but then I also classify them by style. And, again, this might be one of those knocking on the door of the difference between day and swing trading.
Michael:Because for me, it it either falls into mean reversion or trend following and those that the other tag that I use because I wanna be able to go and chart the p and l of just my trend following strategies and look at the market. Because if the market has gone nowhere and my trend following strategies have also gone gone nowhere, it just makes it easier for me to set up looking strategy by strategy. But, you know, like most things, you're right. It's a % the easiest way you can do it. That's likely the best way to do it because, again, we're talking about something that you're committing yourself to do every day almost every day.
Michael:Right? You can miss a day and and and catch up, but I don't think you should miss too many, for the entire life of your trading career. So it should be something that you can do in a in a a fairly quick way so you're not dreading doing it at the end of every day. And as humans, we just have that ability to, overcomplicate stuff, and I think you're right. And that's the one thing that I want to point out that you said is the whole ability to backfill stuff later.
Michael:I think that's the big thing is when you're recording the trade, just, you know, look at your current skills as someone who is, systematic and and, you know, how good you are at Excel and pulling data down. Say, could I easily grab this data later? If so, I don't really need to record it as much. Like you mentioned industry, you could just dump the symbol into any Excel file, and it will just pull down the industry. That's something that could take two seconds.
Michael:If it's something that's very easy to get later, you might not need to record it right now, and that could kinda simplify your process a little bit.
Dave:Yeah. It's really important to think about your process. You know, maybe take a step back and really record, like like, come up with a a a to do list of what your process looks like for doing this and see where certain pieces can be automated or maybe even eliminated. Like, you're gonna be doing this every day. If you're day trading, you're gonna be doing this every day.
Michael:Mhmm.
Dave:So it's really important to dial that process in and not, you know, not worry about recording stuff that you're not gonna need later. So, you know, minimize the amount you're recording, but make sure you're recording all the stuff you need for what you might want to look at it in the future. And you'll you'll get better at this over time as you start doing it. You'll realize, oh, man. I should have been recording this.
Dave:That's gonna come over time as you get experience with this process.
Michael:Yeah. And, you know, when the other thing that I know a lot of people, they they kinda cheap out and buying a journal out there. I I've had a couple conversations with traders about this. They say, yeah, I could do it in Excel. It's like, yes, you could.
Michael:But, you know, there's a lot of things that you could do in Excel that you should probably do something else. So I while you were talking, I just googled, like, a couple of the top, you know, Tradezilla, TraderView, all these things. They're, like, $500 a year max. Right? So it's it's one of those that's a a insanely worthwhile investment.
Michael:If you're trading at all, you're gonna get that return back on your money. If you've got a cut somewhere else, like charting or something like that, I would say, right, downgrade your charting to your broker's charts and then upgrade your, your journaling software because it really will make the difference. I was one that I was, you know, very I just wouldn't do it as much just just because I had an Excel spreadsheet, and it was so laborious. I've tried even doing, like, Notion and some of these, you know, productivity sites, and they're okay. But, you know, I just say just spend the money.
Michael:Just find a cup there's tons of them out there. Find you know, shop around, play with a couple of them. But, yeah, just just find something that makes your life so much simple because kinda what we're getting to is that you just you have to do it. And the easier you can make it on yourself to do it, the more likely you're gonna do it. So that at the end of the day, it ends up being just something that again, it's a it's a minimal expense in the grand scheme of things.
Dave:Yeah. So there's a couple I'm getting ready to write a couple messages to my newsletter specifically about this topic and some suggestions for interactive brokers users. There's a couple really good ways to capture this data in a way that is very efficient. So one of the ways is you can have Trader Workstation automatically generate CSV files for your executions every five minutes during the day. So at any moment, you'll have a CSV file with all your executions.
Dave:That's basically all you need to enter praise into your journal. And the way I use that is I've got a script that I run at the end of the day that looks at those CSV files, formats them in exactly the right way that I need to upload them to my journal. So it's a very quick process for getting all, you know, all those data points in exactly the right format, and I can just you know, it it it's a very quick and efficient process to do that. There's another way that I actually just discovered. There's another way within Interactive Brokers to there's like a a web service that you can set up, and it'll give you exactly the fields that you specify, and you can do some programming to to get it in exactly the right format that you wanna see.
Dave:So there's a couple of different options there specifically with IB. And I've actually I've encouraged DOS, you know, the DOS trading platform Yep. To add this same feature. And I'm I'm pretty sure they're gonna be adding that same feature based on my request. So, yeah, a couple different options that should be really make your life a lot easier.
Michael:Yeah. And just like anything, when when we say with systematizing your trading, you should this is a process that you're gonna have to do every day. The more, dialed in from a a systematic point of view, the the less time, just like we talk about with trading. At the end of the day, you should, have when you're done doing it, you should sit down and say, is there anything that I could have sped up here? You know, make it as simple and as as easy as possible, and then start to go through it, which I think is kind of the final question I wanted to ask is at what frequency?
Michael:Right? So you upload the trades and you tag them and you do all that daily. At what point do you end up sitting down and scheduling time to say, I'm gonna go through these results? I would say, right, daily would be way too much, and yearly would be way too little. So probably somewhere in the middle there.
Dave:Yeah. I do a sort of a quick daily review so I'm on top of things, and I can see, you know, which strategies worked well, which strategies didn't work well today. That gives me the details, you know, below the surface of that top line p and l number. And then monthly is what I do for a deep dive because then you're starting to see a longer period, and you can see some equity curves that, it it's it's just there's less noise there. You're starting to get less noise, and you can really, you know, compare to the back test, in that way.
Dave:But, you know, a lot of this you know, the more and we talked about not automating stuff. You can really and I had this going for a long time. I automated the entire process, backtest, the comparison to the journal. All that was completely automated. So it's definitely something you can do, and you you could do this every day if you wanted to.
Michael:Yeah. I I'm with you, I think, on the same frequency. Right? I wanna take a look every day and and look at what, what I did versus, right, what came through the system, what came through the alerts, and just a quick check to make sure more just to see that I'm holding the things that I should be holding. Again, I think another day versus swing kind of thing.
Michael:I I look at my portfolio every day and then look at what my portfolio should be and and make sure it's not too too different. And then monthly, I think, is a really good idea. And and I usually just, you know, take some time on even the weekend and, right, grab a cup of coffee, sit down, and just kinda go through the data, because you can you can go through the individual charts. You can, you know, take your time to kinda do that. Because that's the only part of journaling that I think should take a fair amount of time is you just schedule that one time.
Michael:You can just really dive in and and take a look at the data and and make sure that everything is is working correctly. And there's just something, I don't know, almost therapeutic about, okay, that's what happened this month. Let's go through it all. Let's make sure it all makes sense. Let's come up with plans on the fixed things that might be running off course or something like that.
Michael:And then go into the next next month, with kind of a fresh mind and say, okay. That that housework, I guess, is done. That area of my life is clean. And then go from there. So, any Yeah.
Dave:There's definitely, yeah, there's definitely a feeling of, yeah, my desk is clean. My my Yeah. As when you get it done. So and that's, yeah, it's important to do that on a regular basis. So there are you were getting ready to ask if they have anything else.
Dave:I've got two things for the advanced traders in the in the audience.
Michael:So Listen up, nerds. That's what he means by advanced traders.
Dave:So one is we've sort of alluded to it, and that's keeping track of the stop price so you can compute the r multiple and the expectancy of your strategy. That is really important, and it what what it does is it allows you to normalize your performance metric across sizing. Yep. So that that is just that's just when when you like, go back to the sizing up strategy we've we talked about before. When you size up, your p and l is gonna look so jagged compared to what it was before.
Dave:So especially if you size up a lot. Well, if you have a a curve based on our multiple instead of dollars, and that's gonna require the stop price, then that normalizes that. So it's much smoother, and you get a much better sense of how your strategy is doing. So the I would highly encourage that. So the second one, this is what another thing that I was recording automatically using my software was the signal price.
Dave:And what that allows you to do is record slippage. So I will record automatically record slippage on the way in, slippage on the way out. All that was tracked in my journal. So, over time, I could see how much money I was losing to slippage. So how much should I be carrying about it?
Dave:And that feeds into how to prioritize what to work on. Do I work on a new strategy, or is there some meat left on the bone here that I could be improving the strategy that I'm already already trading? So those are two, you know, more advanced things to be recording, but still, you know, just, I I think worth it for some kind of traders. And if that's, you know, if you're curious about, slippage, then that's a good way to record it and in your journal to keep track of it over time.
Michael:Yeah. And, like, the r multiple, I think, right, we've covered in prior episodes, but just makes absolutely that's how you should be measuring yourself. You know, when it comes to everything else, it's just a how much you know, how big your account is, all that kind of stuff. But our multiple is is where we have to kinda focus. And I I like that.
Michael:I forgot about that, but that definitely makes sense with the slippage as you wanna you know, there's one thing of looking at the trade and saying this was a profitable trade. But if it was a proper profitable trade by half or even really any amount, significant less than the trade in that you got the signal from, then you're right. Either that's gonna be it's gonna make it easier too if you are deviating from the back test. If you have that slippage number, that's gonna obviously be the first place that you look. Right?
Michael:As you go and you look at it and you say the back test that I should've got in here and out here, and I got in here and out here. Well, you know, that that's the problem. So, I would definitely make sure that that that's something. Probably, again, more important for the day trader side of things, but definitely something that you have to have to record. So, that was good.
Michael:I thought we were gonna have to take a little more time, and then probably something we missed, and we'll come back to journaling again. It's just such an important topic, and I think that's, you know, the really big thing to stress over anything else is just just start doing it. And even if it's not perfect and you have to go back and tag some things later, if you have to do whatever, just start recording the data because if you're discretionary, you have no other way to to record. You know, you have no other way to get the data. But even if you're systematic for all the reasons we talked about is is just do it.
Michael:And it's one of those that ends up being the thing I end up saying to traders when I talk to them at the end of the day is just just record the trades. Right? If you don't have time I always say if you don't have time to record the trades, you don't have time to be a trader.
Dave:That's Yeah. Well, winners keep score. I mean, there's no two ways about it. So if you wanna if you wanna make money, you should be keeping score of what you're doing.
Michael:Well and then you should also and the other thing that I kinda yell at people for is that, that's why you should systematize the other part of your trading. Right? If you're if you're someone who is you're like, well, I just don't have time in in the day in order to record the trades. So, well, you gotta look somewhere else and say, okay. Where do I cut off time from the rest of my trading process and and automate some of that, and that frees up time somewhere else.
Michael:So there's one of those back to the diet example. There's there's no excuse. Right? You're you're the only excuse, so you just gotta figure out a way to to stop the excuse and and and to get to work. And, I promise you, and I know Dave will agree that couple months down the road of of religiously journaling everything you do, There's no way that you come back and say, yeah.
Michael:I'm a worse trader now that I've I've journaled that. Right? It it will be a net benefit. I think it will surprise a lot of people how much of a net benefit, but it's definitely not gonna make you worse.
Dave:Yeah. And so you reminded me of a really important point for discretionary traders. When you keep a journal, at some point, it sort of becomes a back test. Mhmm. Which is super valuable to have, and that's what discretionary traders are are really missing.
Dave:So, it becomes a back test over time, and that's just really extremely valuable.
Michael:Yeah. And, yeah, it's the only way only way you can do it if you're if you're one of those shooting from there. Probably don't have too many of those people listening to this particular podcast, but, you know, might be some people stumbling across. So, great. I'm I'm glad we did this one.
Michael:I think this is gonna be one of the most beneficial to to new traders just to listen if we can if we can change one people's mind on that. I think we did a a net benefit to the the trading and investing community out there. And and as always, I had a lot of fun. And I am Michael Nas.
Dave:And I'm Dave Mabe, and we hope you join us next week on Line Your Own Pockets.
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