How to keep a trading journal that teaches you something

What is a trading journal?#

A trading journal is a log you keep yourself, one entry per trade. It holds the facts (market, date, size, prices, costs, result) and the parts no statement shows: the reason you took the trade, the plan you set before entering, whether you followed it and the state you were in.

The second half is what makes it a journal rather than a spreadsheet of fills. It lets you ask questions your broker cannot answer, such as "do my losses get bigger after a losing day?" or "do I hold losers longer than winners?"

Why keep a journal if your broker already records your trades?#

Because memory is a poor record keeper. Markus Glaser and Martin Weber compared the answers of 215 online broker investors to an internet questionnaire with their actual portfolio performance. Investors were hardly able to give a correct estimate of their own past realised returns, and inexperienced investors could not give a reasonable self-assessment at all ^[2]. The authors note that a necessary condition for learning is knowing what actually happened, so this gap impedes learning ^[2].

Broker records solve part of that. FINRA says keeping good records gives you a history of your investments' performance and is the only way to check that your money was invested as you instructed, with no unauthorised transactions or withdrawals ^[1]. What a statement does not record is why you traded, what you planned, or whether you broke your own rules. That is the gap a journal fills.

There is a second reason. A long study of day traders in Taiwan found that 74% of day-trading volume came from traders with a history of losses ^[3]. A written record makes your own history hard to ignore. It cannot make you act on it, but it removes the excuse of not knowing. Our page on overconfidence bias in trading covers why that matters.

What should each journal entry include?#

Keep the entry short enough that you will fill it in every time. The fields below cover the plan, the facts and the behaviour. Write the first five before you place the order.

Example values match the worked example below. Use whichever currency and market you trade.

How do you fill in a journal, step by step?#

1. Before the order

   Write the reason, entry, stop, target and amount at risk. Size the position from the amount at risk, as in our guide to position sizing.

2. Right after the exit

   Record the exit price, the reason you exited, costs, the result in money and in R, and whether you followed the plan.

3. Same day

   Add one line on how you felt before and during the trade. Do it while you still remember.

4. Once a week

   Add up the week. Compare trades where you followed the plan with trades where you did not, and winners with losers.

5. Once a month

   Look for patterns over a larger batch, and change one rule at a time if you change anything.

What can a weekly review show you?#

Here is a made-up log of ten trades on the same $5,000 account, summarised the way a weekly review would. Six trades followed the plan and four did not. The numbers are invented to show the method; they are not data about real traders.

Invented example. Net result is after costs. Days held is the average for losing trades in each group.

In this example the review points at one thing: the trades that broke the plan lost about twice as much per loss and were held for much longer. That is the kind of pattern a journal can surface and a statement cannot.

It also matches a habit researchers have measured. Terrance Odean's study of 10,000 discount brokerage accounts found investors tended to hold losing investments too long and sell winning ones too soon, and the winners they sold went on to beat the losers they kept by 3.4 percent over the following year ^[4]. Comparing how long you hold winners and losers is a direct check for it. Our page on loss aversion explains why it happens, and our page on revenge trading covers the pattern of losses that follow losses.

Which records do you need to keep for tax?#

Your behavioural journal is for you. Tax authorities care about different records, and the rules depend on where you live. The sources below are US-specific; elsewhere, check your own tax authority.

FINRA lists transaction records confirming purchases and sales, year-end account statements and copies of IRS Form 1099s among the records to keep ^[1]. It notes that the IRS has a three-year period of limitations in most cases, with exceptions that can extend it to six or more years, and suggests keeping records for as long as you hold an investment and for at least several years after you sell ^[1].

If you trade often enough to count as a trader for US tax purposes, the IRS adds a duty of its own: a trader must keep detailed records to distinguish securities held for investment from securities in the trading business, and investment securities must be identified on the day they are acquired, for example by holding them in a separate brokerage account ^[5]. The IRS lists factors such as typical holding periods and the frequency and dollar amount of trades, not a fixed number of trades ^[5].

Mistakes beginners make with a trading journal#

• Writing the reason after the trade

  A reason written once you know the result tends to fit the result. Write it before you place the order.

• Logging only the winners

  Skipping painful entries removes exactly the trades you most need to study. Log every trade, including the ones you would rather forget.

• Leaving out costs

  Fees and spreads are small per trade and large in total. A journal without them makes results look better than the account balance.

• Changing rules after every bad week

  A handful of trades cannot tell skill from luck. Change one rule at a time, and only after a large batch of trades.

• Treating the journal as a strategy

  A journal records what you do; it does not make the trades good. No study we found shows that journaling on its own improves results.

Frequently asked questions#

The bottom line#

Memory is a poor judge of your own trading: in one study, investors could hardly estimate their own past returns ^[2]. A journal gives you the record. Write the plan before each trade, the result and costs after, and review in batches large enough to mean something. It will not make bad trades good, and no study we found says it does, but it will show you what you actually do. Use only money you can afford to lose, and read our risk disclosure before trading.

Education only. This page is not investment, tax or legal advice. Trading and crypto can lose you money. See our risk disclosure.