No successful professional trading in financial markets is possible without sticking to the trading algorithm and continuously evaluating and improving the results. So, the traders face an important task of analyzing the trades they make. This is done based on the entries in the trader's diary.
That being said, the majority of traders either doesn’t keep it or does so occasionally. So, it comes as no surprises that many stock traders lose their money.
If you have been trading in the market for a while, it is likely that you have encountered a situation where you got a negative result, even though the positions were closed in the black. And you had no idea why this was happening since you saw the figures in your statistics, yet couldn’t remember why you entered the position, why and where you closed it, and what your winning and losing trades have in common.
Without a thorough analysis of mistakes, you won’t be able to find your way out of the losses and accurately predict your profitability. Keep in mind that for the analysis, you need not just the figures, but also market circumstances under which a position was opened, a sequence of steps and the reasons behind them.
If we take the traders’ ranking compiled based on their profitability, pick the best of them and figure out the key to their success, all of them will agree on the importance of carefully analyzing the trading algorithm parameters, identifying the strengths and weaknesses of the trading strategy, getting rid of ineffective steps while improving those that bring money.
Some of the traders keep a trading diary in Excel where they enter the parameters of the trades and add comments regarding key factors of trading. Some prefer the old-fashioned way of writing everything down in a paper notebook and then analyzing the entries, keeping track of the patterns and drawing conclusions.
Now, you might be wondering, is keeping a trading diary essential if you want to make it big in trading? Or is the statistics maintained in the trading terminal enough for this?
For starters, you need to test out the mathematical expectation and profitability of your trading strategy to be able to create a trading algorithm.
This is best done in real time mode and not by using a strategy tester. It is a lengthy process but it is worth taking the time to work out the algorithm that will later serve you as your very own money machine. To achieve this, you have to open all of the positions given to you by the market and which are in line with risk and money management parameters and in doing so follow the rules of the trading strategy.
In 3, 6 months, a year, you will have statistics that you can analyze and based on which you can draw conclusions about the entry techniques that lead to the most profitable trades, figure out whether you place the stop loss orders correctly or need to adjust the risk management parameters. In this case, having the statistics generated by the trading terminal isn’t enough, since some of the essential parameters are simply left out.
Keeping the trading diary is a time-consuming process that requires a lot of self-discipline. But the good news is that there are plenty of solutions designed to automate and thus simplify this process. The handiest one is Forex Trader’s Diary developed by Gerchik & Co.
It allows getting stock exchange statistics and analyzing it quickly and automatically. You can enable this service by logging in to your personal account and then configure it for automatic or manual statistics collection.
Let's take a closer look at the advantages the Trader’s Statistics offers. First of all, you can set up both an automatic generation of the statistics from the trading terminal, unload it from the statement, as well as enter the information manually. This will allow cutting down the time you spend on filling out the statistics and will help to not miss a single perfect trade.
Second of all, you can visually analyze the data obtained automatically according to various criteria in a matter of seconds. By adjusting the filters, you can track down which strategy produced the largest number of winning trades or the biggest profit in money terms, and which one turned out to be losing. You can then decide which strategy you should get rid of.
Third of all, you can individually customize the analysis of your trading according to the parameters you are interested in. Let us assume, you would like to analyze a popular and highly profitable strategy of one of the traders in order to improve your own trading performance.
To make it happen, you can use the trader’s diary, an example of how it is filled out by the author of the strategy, and based thereon set up an online diary at Gerchik & Co. The only difference is that the selected parameters do not have to be analyzed manually. It can be done automatically.
The online log will reveal the strengths and weaknesses of this strategy, display the results in the form of tables, diagrams, and bar charts allowing to closely assess the data you are interested in.
Using this tool, you will be able to switch from amateur trading where profit is more often than not incidental to actual professional trading with predictable outcome based on which you can plan your work, profitability, and scale them up.
With solution brought to you by Gerchik & Co, you can also keep your own trading log where you enter not only the parameters of the trade, but also describe your mental state when opening and managing the position.
For instance, you can indicate that when opening a position according to a specific strategy, you got scared and took the profit manually before the price could reach a specified price level in profit, even though the quotes later reached the indicated goal.
By describing the emotions you experienced and consequences of the decisions made in each trade in the trading log, eventually you will notice that the fear of losing profits and manually closing a position reduced your profitability by 10 %, since the price still reached a specified price level in profit in 80 % of such trades, and you wasted additional profit you could have made because you acted too hastily.
From this perspective, the trading strategy you use can potentially produce solid entry points, so there is no need to worry and miss out on profit because of the fear.
Another common mistake made by Forex traders is moving the stop loss to break even. If after each such trade, you write down that you have been kicked out according to a breakeven, whereas the price has eventually reached the take profit, you will realize that you should remove this game plan from your trading strategy, since you missed out on 20 % of the profits because of it. Drawing this conclusion without analyzing the entries in the trading diary is impossible simply because you cannot memorize every little detail.
So, if you have warmed up to the idea of keeping the trading diary, what you need to do next is download the Trader’s Statistics by logging in to your personal account.
It is advisable to analyze the entered data on a weekly (you can do so over the weekend), monthly, and quarterly basis, as well as at the end of the six months and a year.
To analyze already made trades, you should download the trading statistics from Metatrader 4 and then upload the obtained document to your online diary. Once you have set up and applied available filters, you will be able to analyze the available data automatically and draw conclusions.
To maintain the discipline and form a new habit of keeping the trading diary, you can set up auto data fill out. You can enter them manually after making each trade, specify the strategy you used and reasons for your actions, as well as add comments regarding the news background and your psycho-emotional state.
It makes sense to analyze the entered data on a weekly (you can do so over the weekend), monthly, and quarterly basis, as well as at the end of the six months and a year. Aside from the general statistics, analyze the most and least successful time periods at the end of the year and identify the reasons behind it.
It is no secret that the things typically slow down in the market during the summertime, since the market players who have big capital go on vacation. Against this backdrop, the volatility increases, and some strategies may stop performing well which is evidenced by the frequency of losing trades.
For instance, you have noticed that you got more stop loss orders than you typically do during the time period from mid-June to late August. Based on comments, it has been revealed that 40 % of potentially winning trades were closed according to the order, and even though the price produced profit in the momentum, it, however, failed to reach the stop loss.
This will help you decide whether you need to make any adjustments to the trading algorithm and reduce the size of take profit during this time period, even by reducing the risk/reward ratio per trade, since this would increase the percentage of winning trades and thus boost your profitability.
It stands to mention that there is no universal rule for keeping the trading diary. It’s purely individual for each trader. The most important thing you should do is get as much information as possible from the data in order to improve your trading results. So, don’t be afraid to try things out. Luckily, Trader’s Statistics offers wide opportunities for this.
You can use tables, graphs, graphical charts and histograms, customize your own filters and analyze the results using 37 digital indicators. What’s more, all of this is done in a matter of seconds which saves you time and effort.