Why You Should Keep Two Journals

I keep two journals. One
is electronic and one is on paper. In my paper journal each night, I write down
setups I’m looking at for the following day. I note stocks that are close
to triggering me into or out of positions. I note stocks I own that seem extended
and due for a reversal, and I note some quick thoughts on the market. On occasion,
I will make some additional notes in my journal. These could be market observations,
trading observations, etc. — anything I believe might be important to
keep in mind in the upcoming days. During the day, I also note the results of
short-term trades in this journal.

My second journal is electronic.
Like the first journal, I update it at least nightly. (Both are sometimes updated
with quick notes during the trading day.) For my electronic journal, I use TC2000,
by Worden Bros. This program effectively allows me to make notes on charts.
As I go through stocks, either at night or over the weekend, I jot quick notes
on any stocks that look interesting to me. Much of it is done in shorthand to
make it even quicker. If I like a chart enough to do some fundamental research,
then I will note if the stock makes my watch list or whether I am going to pass
on it. If it makes my watch list, I assign it a proprietary rating. If I pass,
I note all the reasons I decided to pass. Also, any time I enter or exit an
intermediate-term position, I will make a note on the chart.

At least once a quarter,
I go through my journals. In my paper journal, I can see how accurate my market
observations were and how that may have affected my trading. I can see how well
my short-term trades worked at different times, as well. In my electronic journal,
I flip through every stock that I took note of during the last few months. I
look at all my intermediate-term trades. I evaluate whether I’ve been
patient enough or perhaps too patient with certain trades. I monitor how effective
my trailing stop techniques were at catching a large portion of the move. I
Monday-morning quarterback all my trading decisions, as well as note how stocks
that I passed on acted.

One other thing my electronic
journal allows me to do is quickly reference any stock. If someone says to me
“Hey Rob, check out XXX, it looks pretty good, don’t you think?”
I can quickly pull up the chart in my electronic journal and see any notes I’ve
taken on it. If it is a stock that had previously escaped my notice, I will
know that immediately. If I already looked at and liked or didn’t like
it, I will know that too, along with the reason why.

Nobody understands your
trading methods, strengths, or weaknesses as well as you do. Nobody can better
tell you what more needs to be done to improve your results than you. There
are many wonderful trading books out there with valuable setups, trade management
rules, technical tools and more. Of all the books you’ll ever read about
trading, the very best one will be the one you write — your trading journal.
It will eventually address everything you need to know to successfully trade
your techniques — in good markets and in bad ones. By maintaining and
reviewing it periodically, I am 100% certain that you will improve your trading.
If you don’t keep a journal in one form or another yet, make 2004 the
year you start. You’ll be amazed at how much you can learn from yourself.

From a market standpoint,
although I’m writing this a little early today, it still appears quite
healthy. Short-term things may be getting a bit overbought. That could resolve
itself with either a pullback or a few days of relatively sideways action. Assuming
we get a pullback, it will be important to note the volume and whether it’s
just profit taking, or serious distributive action. So far so good for the bulls,
though.

Best of luck with your trading,

Rob Hanna

robhanna@rcn.com