A trade log is a valuable tool for every trader. I can be used to improve discipline and performance as well as find strengths and weakness within our trading.
Learn why to use a trade log as well as the basics for constructing your own. Also provided is a downloadable trade log you can use or alter to suit your trading style.
Why Use a Trade Log
If you don’t track everything you do, and why you are doing it, it becomes nearly impossible to see what works and what doesn’t. You may think you will remember your reasons for each trade, but memory doesn’t compare with raw data that is written down in a trade log before, during, and after a trade.
By using a trade log we can increase our discipline and performance by forcing ourselves to write down the criteria of every trade before we take it. This forces us to make sure every trade we take actually aligns with the strategies we are supposed to be using.
The trade log also provides us with all sorts of statistics we can use to improve performance. For example, if we track how far the price moves after we get out, we may find that we are being too aggressive or too conservative with our targets.
Building a Trade Log
A trade log can be as simple or complex as you want it. It needs to be functional though, and not overly cumbersome to fill out.
Here are some things to include in a trade log for swing trading. Add more if you wish.
From the left to right, include:
EVERYTHING FROM COLUMN A TO M IS PUT IN BEFORE THE TRADE IS PLACED!
- The stock and symbol
- What strategy the trade is based on. This should be very specific! For example, when I trade a cup and handle I put a + or – if the handle occurs above or below the prior high. I also put whether the handle is a triangle (tri) or wedge (wed).
- In order to take a trade, EVERY criterion for the strategy must be in place. Input Yes, or don’t take the trade.
- I am a trend trader, so I need a trend to be in place for any trade I take. If I can’t input Yes, I don’t take the trade. You may want to use a different criterion that makes sure you are following your strategy.
- Entry price.
- Entry date.
- Account value at the time of trade.
- Position size in dollars.
- Stop loss price.
- risk percent. (entry-stop loss)/entry
- dollars at risk for the trade…this should be less than 1% of your account value.
- Target price for the trade. Or the exit method you will use if you don’t use target prices.
- The expected reward:risk (R:R) of the trade. I typically like to keep this above 2, and always above 1.5. Otherwise, I don’t take the trade.
- The actual exit price.
- Notes on the trade, from before, during, and after.
- Exit date.
- Profit or loss %. (exit price – entry price)/entry price
- Profit or loss $.
- Actual reward:risk based on entry and actual exit.
- Duration of trade. Excel will calculate this if you subtract exit date minus entry date. It counts all days, not just trading days.
- Max profit. This is filled in a few days or weeks after the trade ends. It is the highest price (for a long position) that the stock reached before having a significant correction. DON’T PUT THE EXACT HIGH, KNOCK A BIT OFF. This lets you know if you got out too early. If you are stopped out, put the highest price before being stopped out.
- Possible R:R. This is the reward:risk if you got out at the max profit price. If your Possible R:R is consistently much higher than your Actual R:R, you know you could make more by expanding your targets or trying to stay in the trades a bit longer.
- Weighted Profit/Loss %. This is the effect of the trade when accounting for position size. Assume a typical trade is about $20,000. Making 10% on a $20,000 trade would have a performance weight of 10% and a dollar gain of $2,000. If you take a position that is only $5,000, and make 10%, your gain is only $500, so the weight is only 2.5% (one-quarter of the other trade, because you only made a quarter of the profit). I use this to make sure that when I take small positions because a stock is more volatile, I am being adequately compensated by a bigger return. If I make 10% on a $20,000 trade, then I should be expecting to make at 40% on a $5,000 trade.
- Running P/L. This is the running total of all profits and losses in dollars.
That’s a basic trade log! Add to it what you want. Here is a downloadable version of the Excel trade log you can use or build on.
By Cory Mitchell, CMT