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While keeping records and making notes of your trades can be a real pain, it is both necessary in many cases and helpful in almost every situation. When we file our tax returns, for example, trades must be listed on a D-1 schedule. Though our brokerages supply us with a great deal of information at tax time, we also need to have our own records of each individual trade. These records can be kept in a variety of ways. Some investors keep them on Excel spreadsheets, and others use more sophisticated subscription type software that also can provide many other pieces of information. For example, I use one company's subscription software which provides me with certain information such as the average number of days in a winning trade, the average number of days in a losing trade, the greatest consecutive number of winning trades, the greatest consecutive number of losing trades, etc.-- extremely useful information that would require a great deal of my own time if I were to compile it myself.

I am a believer in making notes about my trades. I like to have a note at the time of my entry indicating the reason for entry and my exit strategy. At the close of the trade, I make a note regarding the success or failure of the trade and the reason that I exited it. Some traders will keep a notebook or journal with this information and frequently will print a copy of the chart they relied upon to enter and exit the trade with their notes written right on that chart. Personally, I use a wonderful charting service that permits me to type notes right on the charts, themselves. When I enter a trade, for example, I can also make a notation of my exit strategy right on the chart itself, or in a note section of the service. When I close the trade, I put those charts in separate watch lists for closed winning trades and closed losing trades. I then make it a regular practice to review both my winning trades and my losing trades in an effort to improve my trading.

In my own case, one of the things I have observed over time has been that I have a tendency to stay a bit longer in the losing trades than in the winning trades. Undoubtedly, that is a mistake that needs to be rectified. As I noted in last weekend's Newsletter, it is important to cut losses promptly. Even when I think I am doing things properly, I can see I do need improvement when I find that I am in losing trades longer on the average than I am in winning trades. Most importantly, however, the ability to review both winning trades and losing trades gives me the opportunity to see where and how I can improve my own trading. This exercise is extremely valuable for any of us who take our investments seriously.

If you force yourself to write down your reasons for entering and exiting a position, I can assure you that you will become a better trader. If your reasons for entering a trade are consistently based on something you heard in the barbershop, you may find that you haven't been doing too well and may decide to find some other entry strategy. If you find that you are only exiting trades after large losses and long times in your positions, you may want to review your exit strategies. One thing that is pretty certain is that you will have a hard time improving your trading unless you do establish some procedure by which you can later review your entries and exits to understand why you are making or losing money.

Good Trading!
Bill Kraft

Mr. Kraft's past articles are posted on our website for your review.

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