Do You Use a Trading Log Here’s Why You Should

Best Binary Options Brokers 2020:
  • Binarium

    Best Binary Options Broker!
    Perfect Choice For Beginners and Middle-Level Traders!
    Free Demo Account! Free Education!

  • Binomo

    Honest broker!

Do You Use a Trading Log? Here’s Why You Should

A trading log is where you keep a record of your trades. As a day trader logging every trade during the day is almost impossible…at least for me, because I am fairly active in multiple markets. Yet it is still important to keep a record of trades…and not just the trade record your broker should provide.

Creating a Trading Log

First of all, a trading log doesn’t need to be an excel spreadsheet or a written journal, although doing it that way is fine if you are only making a couple trades a day.

The trading log can be a screenshot that shows where you look trades on the chart. Makes notes on the chart to indicate what strategy you used to enter, where you entered, where you exited, profit and losses on each trade and overall profit and loss for the day. If you skipped a strategy signal, jot down why.

At the end of the trading just hit “alt – print screen” on your keyboard, to save your the image of chart. Give it a name–such as today’s date. Do this every day and save them in a folder. This way you can go back and see exactly what you did each day..and actually see what the market conditions were that day.

What to Include

Here are things you want a record of each day:

  • Put your general thoughts down as the price action progresses throughout the day. When looking back this will give you a good idea of how clearly you are interpreting price action.
  • Entry and exit points for trades
  • The strategy you used to get in and out. Typically I index my strategies and give them a short name (F, C, PB, V etc). I can then quickly put that label on my chart, and down road, if I look at that chart, I know exactly what strategy I was using. This of course requires that you have a well defined strategy, which you should!
  • Daily totals: how many trades? How many winners? How many losers?
  • Ideally you should be trading the same position size on each trade during the day, if it changes, note why and then write your various position sizes for each trade.
  • Note trades you don’t take, and why.
  • Draw on your chart, highlight and trends and resistance/support that affect your trading decisions.

How to Use It

Once you have your chart saved for the day, review it. And at the end of month, quickly go through all your charts you have saved for the month.

The goal is to go back and see how well you did at following your trading plan and strategy. Did you skip lots of trades you should have taken? Did take lots of trades you shouldn’t have?

By addressing these questions as you go through your charts, you’ll likely realize that if you just stuck to the plan you’d have likely done much better than you did.

Don’t beat yourself up over it. By going through this process constantly, eventually it will seep into your brain that you need to follow your plan to be successful, and behavioral changes will follow.

Best Binary Options Brokers 2020:
  • Binarium

    Best Binary Options Broker!
    Perfect Choice For Beginners and Middle-Level Traders!
    Free Demo Account! Free Education!

  • Binomo

    Honest broker!

One mistake is to look through the chart/trading log and try to figure out ways in which you could have made way more money on a particular day. This is generally a fool’s errand. What would have made you a bundle today may lose you a bundle tomorrow, and changing how you trade each day is a sure way to go broke. Instead, just stick to a couple strategies and try to implement them as best you can. Focus on following your plan.

Final Word

A trading log tracks what you are doing with your trades during the day, so you can review those trades later for “quality assurance” purposes. I find the best way to keep a great daily record is to write notes on my charts throughout the day, mark my trades and strategies utilized, as well as any other pertinent information, and then save a copy of the chart on my computer. By putting this information right on the chart, it is much easier to look back and get a sense of what was going on that day.

Use these trading logs for review–review at the end of the day and review at the end of the week or month. Note how often you deviated from your trading plan, and how sticking to the plan would benefit you. This is a tool which will help you develop discipline in sticking to a winning system, if you use the tool correctly.

Use A Trading Log

Last updated on March 18th, 2020

Without using a trading log to log your trading activity, you will have no clue if your trading strategy has a chance of working over the long term.

You need data to back up the probability of your trading strategy and a trading log is the best place to start.

Why Are You Not Using A Trading Log?

Part of the reason why so many people overlook it, is that they don’t have or can’t stick to a proper trade plan. If this is your problem then you need to be journaling.

If you are able to execute your plan properly within reasonable discretionary limits, then to get to grips with it and be able to build upon it, you must take the time to assess, plan and log your trades appropriately.

“But my trading platform has a trade log”.

Maybe it does. Perhaps it even has the statistics you need to assess your plan.

But what if it doesn’t?

  • What if it doesn’t know that you took a setup on an attempted gap fill last Tuesday?
  • What if it can’t account for the fact that you think perhaps your strategy works really well after the release of NFPs?

You might have thousands of entries in your trading log, but unless you plan what you want to look at, the log will be limited in value (although still better than nothing). If you take the time to address what you hope to gain from your trade log and how you record your trades, you will reap the rewards and agree that your trading plan is really your best friend.

Well perhaps not your absolute best friend. Your risk plan is probably that and your strategy and psychological approach can be thrown into the mix here too.

Potential of a Trade Log

If you struggle to stick to your plan then it’s important to make use of your trade journal (and possibly reassess your plan), understanding the importance of a trade log can give you the extra commitment and impetus needed to stick to your plan in itself. This is before you’ve even started looking at the stats.

You’ve got something to aim for and so your consistency of execution notches up a level.

Because it has to.

If you don’t sort out your execution, what good are the stats from your trade log going to be to you (other than in proving how you don’t follow your plan)? But don’t think that you’ll automatically become immune to making mistakes all of a sudden, just because you start following your plan properly and logging your trades.

A trade log also can highlight the number of mistakes you are making and therefore keep you on your toes. If you’re aware of how likely you are to make a trading mistake (without putting all your focus on it), you’ll be better placed to rein yourself in when you need to.

Improve Your Trading Plan With Hard Data

Here’s where the trade log really shines; it tells you where your plan can be improved upon. Of course it doesn’t actually tell you anything. It’s actually just historical stats and this distinction is really important to make.

The interpretation of those stats when put into the context of how a market trades, the possible implication on occurrences of similar instances of an event in the future and the way you trade your trade plan, is what will potentially be invaluable to you.

You could of course end up making inappropriate changes to an otherwise solid trade plan for example, if your interpretation is not good. So there is a degree of skill in using the information you gather, but like with anything, you should be testing any changes you make anyway.

By seeing how the trade plan works, you are not only able to improve its level of performance, but also gain a deeper understanding of how the market you’re looking at trades. This will potentially give you an insight into specific variables to focus your attention on, in order to tune your plan and whether other types of strategy could work on the market.

Many Variables Can Be Measured

As I’ve already highlighted, there are so many different possible variables. In fact you could argue that the number of variables we choose to look at is limitless.

  • How much volume has traded at the open?
  • What was the size of the range for the previous session?
  • Does a specific economic release change the odds of success of your strategy on that day?
  • Is there a specific time window or day where your plan works better or worse?
  • Do you perform better after a long workout before the session starts?
  • Are you able to generate more consistent results when you only have to concentrate for a short amount of time?
  • Does the strategy perform better when the market you’re trading is trending or balancing?

Do you see my point?

If you are going to be able to analyze any aspect of your trading, you are going to need to plan ahead for it. There are some things your platform may give you anyway, but anything which is non-standard or subjective must be logged at the time so that enough data can be gathered to properly study it.

So many times I’ve thought of something only to realize that “nope, you can’t study that idea easily”. But when this happens, I add it to my trade log so I’ll be able to figure it out at some point in the future.

Sometimes the information is useful and many times it’s not. But until you decide to track a variable and then subsequently test it, how are you to know?

Basic Trading Journal Information

You don’t need to have a fully in depth journal when you are just starting. Even a basic listing of your trades (real and simulated for back testing purposes) can help you stay on point.

  1. Day
  2. Date
  3. Time Trade Taken
  4. Time Trade Closed
  5. Entry and Exit Price
  6. Stop Loss Price
  7. Position Size
  8. Profit and Loss

That information can be taken from your broker software but you will have a better chance of reviewing it if you make a list for yourself.

But what if you want something more in-depth?

Online Trading Journals

There are some sites that offer trading journals for a cost. Here are three that you may want to investigate although I have no experience with any of them

One very popular free trade journal is MyFX Book for Forex traders.

Use Your Log Every Trading Day

Just like a trading plan, your trading journal has to become one of the rules you follow. End every trading day by logging all the information on the spreadsheet and if you have our software, let it calculate the important information.

You may find that by logging all your trades, you can improve your trading plan to reap even bigger profits or lower risks. Either way, you will find a trading log to be invaluable.

Do You Trade Spreads? Here’s Why You Should Consider Legging Into Them…

Charles Cottle’s column is intended for more advanced traders. If you would like to learn how Mr. Cottle trades, you can find more information here.

It was once considered sound advice not to leg into and/or out of an options spread. Most investors still shy away from doing this and put all their orders in as spreads. It was good advice when orders were physically handled in the pits on the options floors around the country and one had very little control when transacting. Levels of frustration run high when people are waiting for information about impending fills, canceled orders or even a simple quote. The world has changed and immediate gratification has become more attainable. Options can be clicked into and out of in a matter of seconds and therefore the transaction risk has been greatly diminished. There are a couple of nuances of the options market that we advise to keep in mind when legging, especially when ‘caught naked between spread legs’.

1. In an electronic world, one gains control by legging spreads, avoiding floor procedures at all costs.

2. One needs to understand synthetic relationship in order to have other ways in or out of a position.

3. Save money while still motivating market makers to take the other side of your orders.

4. One should not be afraid to use stock to ‘stop the bleeding’ (or at least change the flow of blood).

Which Side First?

From a margin and risk standpoint it is prudent to leg the buy side first but if you have the wherewithal, by all means, go ahead and leg from the short side. Having said that, it may be inconsistent with your market opinion and you might want to consider executing the synthetic equivalent position as an alternative, i.e. when bearish buy a put vertical (bear spread) instead of selling a call vertical (also bear spread). When at the same strikes, the synthetic equivalents move at about the same rate and maintain a fairly constant relationship (called the “box”). It’s also wise to consider that the out-of-the-money synthetic equivalent options’ bid/ask spreads can be considerably narrower reducing the cost of doing business.

Hard Side First

Do the hard side first. One leg of the spread can be considered harder than the other side when there is lower liquidity in one of the components. To help determine the level of liquidity, check the volume and open interest and make sure that there is some trading going on in those options. Note the widths of the individual markets in order to indicate what you might be faced with when trying to make subsequent adjustments or liquidating the trade. For calendar spreads (also known as time spreads) the hard side would almost certainly mean trading the deferred month first and then the closer dated month. The front month moves faster (higher gamma) but the options are usually more liquid. There are those, more experienced ‘leggers’ who prefer to enter their buys and sells to work at the same time but that is not recommended for everyone. Either way on may prepare orders and store them in the “Order Queue” ready for sending.

For a Ratio/Back (ShortMore/LongMore) spread, I like to grab the greater quantity side first. It is easier to pull the trigger on the smaller quantity especially if it starts to get away

Risk and Money Management

Let’s say that you have Long 10 March 90/95 call spreads (bull spreads), when you are long 10 Mar 90C and short 10 Mar 95C and want to liquidate it (with a bear spread). On the natural markets, the spread is 3.60 (bid) – (at) 4.00 which is 40 cents wide. It’s a pretty good bet that the spread is worth about 3.80 when 3.80 is the current average between bid and offer. The inside or actual market would be something like 3.70 – 3.90 or possibly even 3.75 – 3.85 if the crowd felt that they had to be a bit more competitive with one another or the other exchanges. By the way, the 3.60 bid is derived from 8.60, the bid price of the 90s, minus 5.0 0, the offer price of the 95s).

The 4.00 offer price is derived from 8.80, the offer price of the 90s, minus 4.80, the bid price of the 95s. Incidentally, one should always consider the corresponding put spread and in this case the Mar 90/95 put spread is 1 .05 – 1.35, only 30 cents wide on the naturals and most likely something like 1.15 – 1.25 when the fair value is 1.20. The 1.05 bid is derived from 2.20, the bid price of the 95s, minus 1.1 5, the offer price of the 90s. The 1.35 offer is derived from 2.35, the offer price of the 95s, minus 1.00, the bid price of the 90s. Very seldom does one have to “pay up” to “take” the natural offer or “sell down” to “hit” the natural bid. Often traders like to middle the market in hopes that the market will move to their price. The market would almost certainly have to move because there is little incentive for market makers to meet in the middle unless the trade happens to fit their position. It is rare, indeed, that a market maker meets in the middle since the reason they come to work is to buy under-value and sell over-value. A current offer at the middle, i.e., 3.80 would prove fruitless temporarily but could get bought in the event of a market rally enough to motivate a market maker to buy it. The spread happens to have a delta of about .20 so a 50-cent rally in the stock may increase the spread’s value by about10 cents meaning that it would then be worth 3.90 making the 3.80 a better buy so the offer may be scooped up.

Back to the trade – remember, we are through with being bullish, or we are now bearish, or we have enough profit, and now we want out. From a market opinion standpoint it doesn’t make sense to leg by buying our short 95 calls back first. It may also be prohibitive from a risk and margin standpoint to sell out our long 90 calls because that would leave us naked short the 95s. What oh what can we do? Buy the 90/95 put spread (some call it the 95/90 put spread) instead. If we get filled, we will be long the 90/95box. It may be necessary to sell the box later due to the pin risk 1 potentially involved.

(don’t worry, the box can usually be sold just prior to expiration for a nickel or two less than the 5.00 value). It is reasonable to assume that if we bid 2.30 for the 95 puts (just a nickel away from the ask of 2.35), we would get filled then by offering the 90 puts at 1.05 (only a nickel away from the 1.00 bid). The net price of 1.25 for the spread is synthetically equivalent to selling the call spread for 3.75 when the box is worth around 5.00 2 . Not bad.

Adjust the Leg Size

What if you wanted to just get long 10 put spreads, and you intended to buy it at about 1.25. That would be $1250 of risk. Therefore, when legging you should not risk more than that amount (assume the worst). This means that you buy about 5 contracts at a price of 2.30 on the first leg, get filled and get filled on the other side’s sale before going for the next set of fives. Legging 5 at a time instead of legging all 10 at once ($2300) will end up costing a bit more in commissions depending on thicket charge if your broker charges them. The immediate accomplishment, along with the fact that you are more assured of getting in or out of the market, will make it well worthwhile. Remember also that the reason you are legging in the first place is to get a fill at possibly a better price. Better prices for your spreads will save more than the extra commissions spent.

Remember: The biggest problem with legging is stubbornness. Be disciplined and pull the trigger. Don’t be greedy. When you mess up, spread off, and move on.

1 Pin Risk is discussed in Coulda Woulda Shoulda starting on page 75.

2 Actually a box is worth the present value between the strikes with some exceptions. See more about boxes in Chapter 8 of Coulda Woulda Shoulda, starting on page 169.

Best Binary Options Brokers 2020:
  • Binarium

    Best Binary Options Broker!
    Perfect Choice For Beginners and Middle-Level Traders!
    Free Demo Account! Free Education!

  • Binomo

    Honest broker!

Like this post? Please share to your friends:
Binary Options Trading Step By Step
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: