Seeking Alpha
Long/short equity, gold, investment advisor, growth
Profile| Send Message|
( followers)  

When speaking with a client recently I was reminded that many of the mundane, listless, yet important tasks that are essential to the trading success of me and my clients may not be common knowledge to all. One of these tasks is the detailed record keeping of trades, a now automatic chore that continually allows me the opportunity to analyze and learn from my trading successes and failures.

I first picked up the habit of keeping a detailed trade log after reading Toni Turner's "Short-Term Trading in the New Stock Market". I remember reading this book at the height of my swing trading career, eager to know everything there was to know about technical analysis. And though our technical markets have changed so dramatically since the first publication of this book there are still quite a few lessons to be learned from it; one, of course, being the importance of keeping detailed trade records. This kind of record keeping may not be entirely necessary for longer term, fundamental investors, but for short term, technical traders, it is a non-negotiable.

When developing my trade log, or trade sheet, I include the following information:

  1. Entry date
  2. Equity symbol
  3. Number of shares purchased
  4. Entry price
  5. Total purchase price, including commission
  6. Initial stop loss (generally, in my case, a support level or technical indicator event)
  7. Profit target
  8. Exit date
  9. Amount of days held
  10. Exit price
  11. Total sale price, including commission
  12. Profit/Loss (total sale $ - total purchase $)
  13. Profit/Loss % ({total sale $ - total purchase $} - 1)

Depending on the style of the trade, other fields that could be beneficial may include:

  • Risk to reward ratio
  • Second or adjusted stop loss
  • Second or adjusted profit target
  • Any others as you see fit

Here is an example of what the beginnings of a trade sheet might look like:


(Click to enlarge)

Under the "Initial Stop" column, "US" is an abbreviation for up-trending support, an indicator that I often use when protecting from loss. Unlike the traditional stop loss order, this technique does require continual monitoring of my position but I enjoy the flexibility this gives me. Alternatively, a trailing stop loss can be used in a similar vein; but to each his own.

Also note that under the profit and loss (P/L) columns at the far right I have used conditional formatting to better visual these figures. This formatting color codes my P/L from red, being the worst return, to green, being the best. Therefore, as you notice all returns thus far on the spreadsheet are positive; the red simply indicates that the 1.19% profit made from the most recent trade is the lowest, relative profit from all trades.

I recommend using conditional formatting to help visualize which trades perform better than the others and which perform worse. For example, in the ARR trade which yielded 1.19%, the worst return thus far, one might want to look for possible reasons that this trade yielded a significantly worse return than the others. Was this lower return due to the fact that the position was only held for ten days as opposed to the other that were held over 20 days? What factor caused an early exit, so far below my profit target?

Of course, as this trade sheet is only three trades old, analysis like this may be a bit premature but one can see the point. This information and these questions may also help to establish a trading style that best suites the trader's personality. For example, the information above may show us that this trader is more successful when holding positions for a month or more as opposed to swing trading, etc. But again, it's too early to tell with this trade sheet example.

Your trade sheet should also include cells, like those seen at the bottom of the spreadsheet, that calculate average capital per trade, average P/L ($), average P/L (%), and average days held. This information is vital to your trading "business". Using the sample information above, therefore, we can see that, with each trade, we are bringing in an average of $202.70 every 21.667 days. Or, to look at it in another way, every 21.667 days we are making a $202.70 (7.15%) return on $2705.80, our average trading capital.

Similarly, keeping a monthly and/or quarterly P/L is also essential. I will save the details for another article but, as with any business, having an accurate account of your profit and loss throughout the year(s) is the lifeblood of your business and will increase the likelihood of your success tremendously.

In summation, I offer the above information as a helpful tool to traders of all experience levels. Keeping an accurate trade sheet has kept me from repeating failures by allowing me detailed insight into my faults and missteps. Conversely, this trade sheet has also increased my likelihood of repeating success by helping me to see, at a quick glance, what trades work best and/or what style of trading better suites my lifestyle. I hope this information helps you as it has helped me.

(An instructional video on this subject can be viewed at http://www.youtube.com/watch?v=FMCx6hqB4rs.)


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: How To Improve Your Trading: Keeping A Detailed Trade Log