Doug Newberry
Obviously, capital is the most important asset for stock trading. Without money to invest in the stock market you certainly can't learn how to trade. But the business of trading has other assets as well.
One of your most important assets is your decision making process. This is one of many essential financial tools you develop over time. Without it, you can't make a profit. Of course, some people's decision making processes are better than other's from the very start. No matter what your skill level, there's always room for improvement. That's where a trade diary becomes very useful. Use your trade diary to analyze your decision making process to figure out what worked in the past and what didn't. A trade diary serves as a log of different factors and information that are relevant to the entire trading process. In order to help yourself improve as a trader, you need this sort of "at a glance" information. All your trades should appear in the trade diary. Always enter your information at the time you make the trade. The further you are from that moment, the less accurate the information will be, and consequently the less valuable your trade diary will be in informing future trades. Important factors to enter in your trade diary include the date and the time of entry, number of shares, setup, expected trade duration, your subjective state, trigger, symbol, company name, and price per share. You should also mark down your trade exits, being sure to include the profit or the loss for each. Of course, you can modify the content of your entries as you start to realize what information is most vital to improving your skills. However, it's important to be consistent or the information won't be useful in the long run. In addition, set aside a place in your diary to log the trades you nearly took but didn't. This information helps you track how well those stocks did and let's you know whether you made a good or bad decision. Don't wallow in regret over your decisions against investing when you look at these logs. After all, useful skills are all you should be using this journal for and regret isn't a useful skill. Keep a spreadsheet alongside your trade diary with a list both of your positions and how well they're doing. You might include some or all of the following information on your spreadsheet:
- Beta
- Sector
- Quantity
- Symbol
- Sector
- Description
- Purchase Price
- Purchase Date & Time
- Commission Cost
- Latest Price
- Market Value
- Percentage of Assets
- Gain or (Loss)
- Percent Gain or (Loss)
- Average Daily Volume
- PEG Ratio
- Market Cap
- YTD Return
- Dividend Yield
- P/E Ratio
- Projected Growth Rate
Of course, these columns aren't appropriate for every trader. If you day trade, you won't be as interested in noting your PEG ratio as you would be if you were a long term trader. Also, don't rely on your brokerage to keep this spreadsheet for you. Keep it for yourself. Your brokerage maintains this information only as long as the trade is open.
Review your trade journal from time to time to learn from your trades. Review it more or less frequently depending on how often you trade. Good luck with learning from your trade diary, and be assured that this small amount of extra work adds something truly valuable to your financial tools.
Links We Like
8 Ways to Reduce Stock Investment Risk, by John King. Excellent introduction to the risk vs. reward equation.
How to Use Small Caps to Beat Big Money by William Smith. Small caps deliver growth potential, diversification and the ability to buy-and-hold when used properly as part of a larger portfolio.
Invest In Micro-caps for Highest Returns by B. Patrick Regan. A risk versus reward analysis that’ll knock your socks off.
Market Cap Classifications by Craig Tesch. What is a micro-cap versus a mid-cap versus a large cap? You ought to know before investing, not after.
