Why Maintain a Journal?

I received a lot of positive feedback for the last week’s article. This encouraged me to write a little bit more about the importance of the Trade Journal. I wish to highlight the necessity of maintaining the journal. Unless you realize the benefits of maintaining the journal, you will not be disciplined or motivated to maintain the journal.

Ask yourself why companies maintain records. Every business, big or small, maintains records of their income, expenditure at the bare minimum. Even at a household level, records of monthly expenditure is maintained. My mother still maintains a written log of daily expenses incurred. Am sure someone at your household does this in a physical format or in electronic format.

If maintaining records is required for households and other businesses, it should be equally relevant and important for your trading/investment activity. Let me again narrate my real-time example. Hope this rings a bell.

This is an episode that happened way back, a couple of decades ago. I was vacating my house and was forced to clear and dump unwanted stuff. I was a big fan of a particular magazine and made it a point to buy it without fail. I did this religiously for several years. While vacating my house, I found more than a hundred back-issues of that magazine. Each magazine cost Rs.50 then (if I correctly recollect).

Looking at the archives, I realized I had spent more than Rs.5,000 on these magazines. There is nothing right or wrong here. But when I realized that I had spent this big an amount it was mind-boggling. I asked myself if I derived enough value from this magazine. The answer was not a resounding yes. I then decided to stop buying it.

In this case, I was not maintaining records of my expenditure and by accident, while vacating the house, I realized the total amount spent on this magazine. Had I maintained records and reviewed them; I could have addressed this issue much earlier.

The message here is that if something is not recorded, it cannot be quantified. If it cannot be quantified, we cannot measure the impact or progress of the activity. In trading too, if you do not maintain records, how will you assess your progress and take corrective measures that are required.

If you do not record something you will not realize the mistakes you commit and the gravity or the impact of those mistakes. In my magazine buying episode, month after month without realizing it, I was spending money that was not “necessary”. Just because it was a marginal amount every month, I did not realize the net impact.

Something similar can happen in trading too. This will be a typical cycle if you neither have a process nor maintain records :

If you do not have records, you will not realize the total impact of these mistakes. And if you do not realize the problem or its cumulative impact, how will you address it?

If you are not disciplined enough, the best solution is to make yourself accountable to your spouse or parent(s) or someone who is genuinely interested in your progress. Ensure that you share your trades and its outcome with that chosen person on a weekly or monthly basis. This will force you to maintain records as you are answerable to that chosen person.

Once you develop the discipline to maintain records, you will soon realize how much money you make or lose in this endeavor. If you realize that you are losing money, you can then look for ways and means to address that. The solution could be a tweak to your entry method or exit method or something else. If you cannot figure it out, do not hesitate to seek help from an experienced and profitable trader.

Lots of people falter and do not maintain records because they are unable to realize their mistakes. There will be a string of losses but unless you know what triggered those losses, you cannot identify if there is a problem or not.

If the losses resulted from following your process, then it is not a mistake. But if you do not have a process, you cannot identify if the losses were normal or avoidable. You will abandon record-keeping sooner than later if it has no purpose or benefit.

So, develop a process or trading system first. This is like your Budget or a mission statement. You then record your actuals and then you can compare the budget vs actuals. If there is too much of a deviation, you will realize that there is something amiss and can consider corrective action thereafter.

If there are no rules or process and if you see a bunch of losing trades, how would you know how to deal with it. You will naturally want to avoid looking at that and stop journaling. Hope this infographic helps.