Secrets of a Trading Journal | Podcast Episode #238

0:07
Hey, I’m Ryan Mallory, and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the stock market, and today’s episode is gonna be a good one. We haven’t really talked about journaling and our trades and keeping a good trade journal that has good records to it and what we can deduct from our trade journals to make us better traders.

0:47
But today we will. Today I have an email from a guy that I’m gonna give a good Florida redneck name to. His name’s gonna be Gator. Gatorites. Hello from the great state of Maine. It’s not quite a redneck state. I’ve been listening to your podcast for quite a few months, and I have to start by saying thank you for continuing to be such a powerful and useful resource for all of us trying to make our way in these markets.

1:12
My question is regarding journaling and drawing useful info out of my own trades. I’ve been practicing for a while and have a strategy that I’ve been working on, only paper trading though, for this guy right now, and I want to know. How you journal your traits.

1:28
What sort of information do you record and how do you use it to draw conclusions about your trading? I want to analyze my own trades and get better, but found that I’m not sure what to look at and how. I hope this makes sense. Thanks, Hank. All right, Hank, it’s a darn good question that you’re asking me here, and we’re gonna get to that, but first, what am I drinking?

1:50
I am drinking Sugar Land Shine limited edition Ryder Cup lemonade. It’s a moonshine. It’s 20% alcohol, 40 proof. I don’t even know how you have the guts to call something moonshine at 20% alcohol. 40 proof, man.

2:08
It’s horrible. I haven’t even tried it yet. I know I’m gonna hate it. It’s not good. I mean, there’s no smell to it. I would have thought I might smell like a nice fresh lemon. No, nothing like that, guys. Instead, it tastes like a flat soda that’s barely carbonated, you know, like the ones where you take a sip out of it, put it back in the fridge or you leave it on the countertop, and then lunch rolls by the next day and you take a sip and you’re like, uh, I don’t think I can get through this whole thing.

2:37
That’s kind of like what it is, it’s kind of like a soda that’s been sitting on the counter for too long, losing its carbonation. I don’t really even taste the lemon too much. It’s more like drinking Mike’s Hard Lemonade. There’s not much of a difference here, and I don’t even think Mike’s Hard Lemonade is very good.

2:53
I used to like it like way back in the day, but it’s not that good, and neither is Ryder Cup lemonade moonshine. And the best thing that comes out of this is that it’s a limited edition cause thank goodness, I’d hate to think what they might do if they mass produce this thing.

3:09
Keep it limited edition. Heck, make it a scarce product by never producing another one of these jars. I give it a 2.3. It’s not good. I’ll probably drink it, but it still doesn’t make it any better. Definitely not a sipper, and definitely not something I would ever add to the shelf.

3:27
Ryder Cup lemonade 2.3. OK, so back to this email here from Hank. He’s working on a strategy. He’s paper trading. I’ve always said paper trading, it’s not the worst thing to start off by doing, but don’t get your hopes up that because you’re successful at paper trading that you’re gonna be good at trading because when you get into trading, it’s a lot of emotions that you’re gonna have to encounter for the first time, especially when you start losing money for the first time because in paper trading, you don’t lose money.

3:52
It’s like playing with monopoly money. So, while a trading strategy can work good using just paper money, You won’t truly know if it’s gonna work for you until you can actually apply it because then that’s where the emotions get involved. And so, a couple of things I think about when you’re starting a trading strategy is one, will your strategy work?

4:12
With your emotions. How will you handle the drawdowns and the volatility that comes with the stock market? Sometimes the market’s very docile. It doesn’t make a big moves. I mean, sometimes during the summer time or, you know, Christmas Eve or another holiday of some sorts, you might only see a 2 to 3 point swing on the S&P 500 on extremely low volume.

4:31
But there’s times in like right now, for instance, where the market will move 2 or 3% in a single day. So how are your emotions gonna hold up to that kind of volatility? The other thing I would do, and this is point number two about point paper trading, is that, have you tested it against bear markets?

4:47
Because you can have a good 10-year run in the stock market like what we’ve had since the 2009 bottom from the Great Recession. Actually, it’s been like 12 years, but how does it hold up in a bear market? Because in one year of a major bear market, You can wipe out almost all your gains if you don’t manage the risk correctly and if your trading system’s flawed, 10 years of time spent doing well in the stock market can get wiped out.

5:14
That’s why I’m so adamant about managing the risk because when a bear market comes, I don’t want to get wiped out. I really don’t. I’d rather be making money out of the bear market, kind of like what I’m doing right now in this year. I mean, stock market was down today, I was up. And that’s not me just tooting my own horn.

5:30
That’s just me trying to say is like, I don’t wanna lose money ever. I always want to be making money now, am I always perfect and always making money? No, but that’s the goal. I want to survive the bear markets and I wanna profit from them. And so you wanna look at how does your strategy perform in a bear market.

5:47
There will be opportunities if it’s a long only trading system to get long on the stock market. I mean, look at what we just had in March. I didn’t. Jump on this March rally that we had from the March 14th onwards. I stayed on the sidelines, but there was opportunity there for the right trader to be able to profit off of that.

6:08
But now you go back to 2008 and everybody thinks, oh, this was such a bad time for the stock market. But you know, like 49% of the days during 2008 resulted in a day where the stock market went higher. Yeah, there was months where the market actually finished higher. The reason why I bring that up is, is that there’s still opportunities to the alongside of profit.

6:27
The key is going to be, and this is number 3, a long only system. That you’re creating or a strategy is gonna be great when it accounts for not over trading in bear markets. That’s where a lot of people get themselves in trouble. I just recently did a video on the AMD breakdown and You know me, people are back holding from the 160s on AMD while it’s currently trading at 97.

6:49
Those are the situations that you want to keep yourself out of. You want to lose quick and win slow. I want to stay in my winning trades as long as possible, but the last thing I want to do is stay in a losing trade for an extended period of time because that usually means big losses are happening as a result, you are undisciplined in your trading, and you got a loss that it’s gonna take forever to recover from.

7:08
So that’s all I got to really say about the paper trading and developing a strategy. Just make sure that if it’s a long only strategy that you’re using and most people just use a long only strategy, look at how does it do in a bear market. Does it over trade? Does it send you into large drawdowns because drawdowns are very difficult.

7:25
If you have a 50% drawdown in your account, guess what, it’s gonna take a 100% move to make all of that money back. You are best off when you can keep your drawdowns somewhere between 1 and 5%, and I know one is kind of a hard one to Attain, but 5% is not.

7:42
I mean, keep the wrist tight and you keep the position sizes reasonable and not get too big on those position sizes. You take some profits along the way, you can keep the draw down to a minimum. And now to his actual question that was not what he was asking me, but he did bring up paper trading and I always like to find the other questions within the email.

8:00
That are worth addressing and he writes, my question is regarding journaling and drawing useful info out of my trades. I want to know how you journal your trades, what sort of information do you record and how do you draw some useful conclusions from it. So I’m pretty basic on my trading journal. I like to be a little bit more descriptive about the trades, like what happened, what went wrong, and I like to reflect immediately too.

8:21
So, first off, I mean, the basics, I like to include my date of the trade, the date that I got out of the trade. Entry price I got in at, how did I scale out? Did I scale a third out at, you know, 102, another 3 at a 104, and then maybe I sold a quarter of a position at 106 and then I let it ride the rest of it to 120.

8:44
I like to write down all of that. I also like to account for dividends because that can change the value of the stock. And usually I just take the dividend and subtract it off of the entry price because I will get that money. I also put on there, what was my stop loss, what was the percentage of the stop loss?

8:59
And then I like to include in there my notes from the trade. Did I panic sell? Did I get out too soon? Could I have done a little bit better by selling a little bit of loss and see if it recovers? Did I follow my stop losses, which I do. Those are all good things to have down in the notes to almost write a story about your trade, not like it was a cold, dark night and the.

9:22
Market makers of Wall Street were against me for days now, yet I prevailed. I mean, not like that. You don’t want to be be corny in how you tell the story, but talk about, you know, the emotions that you were feeling when you got into the trade and, and when you got out of it. I’ll be honest, I mean, I feel emotions all the time.

9:39
I think it’s one of the stupidest things for people to say you gotta trade emotionless. I don’t think you can trade emotionless, but I do think that you can trade with the understanding of your emotions, saying, hey, this is how I feel, but that doesn’t necessarily reflect the reality of the market. For instance, when I take partial profits in a trade, I hate it every single time.

9:56
I want to write that whole position higher. I’m like, man, I’m getting out of this thing. I know this stock is gonna keep going up, hate getting out of this thing. But you know what, more times than not when I feel that emotion. I’m usually glad that I got out at least, you know, half or 1/3 of a position out at the price that I did.

10:14
And so talking about the emotions are really good because it helps you understand certain patterns and behaviors that are cropping up in your emotions over time. And then when it comes to other conclusions too, I like to look for different trends in my trading. Am I just buying the dip?

10:29
Am I emotionally driven to buy stock XYZ? Did I FOMO into Apple? Did I double down on a position? Am I revenge trading? You’ll be shocked at how much revenge trading is in your portfolio if you really look closely at it. Look at your repeat trades.

10:45
Did you get back into AMD? Did you get back into SQ? Did you get back into PayPal because you just got stopped out for a 5% loss and you saw it start to bounce back a little bit and you’re like, heck no, that thing ain’t rallying back without me. I’m getting back in. Did you do that? I know I’ve done it in the past. I’ve done it a lot in the past.

11:01
Back in 2015, look back at my portfolio and there was a lot of trades with like UPRO and I was buying the dip too much. I felt like the market was gonna bounce at any time. It was oversold. And I kept buying it. Sometimes I’d buy it 2 or 3 times in a given day, and I had to stop that.

11:18
I had to realize, man, 1, that’s an emotion. 2, I’m trying to catch a bottom in the market and I shouldn’t be trying to do that. So when it comes to finding tendencies and flaws in your trading, you can find a lot of it by just looking at what you trade over the years. And during specific periods of time and try to find the trends and.

11:37
Things that stand out as kind of like irregular trading in the sense that you shouldn’t have been doing that. In 2015 that I just brought up, I kept buying the dip. I kept thinking that there was a bottom at hand and sometimes I could get sucked in on a 5 minute reversal on the intraday charts and then get stopped out 10 minutes later.

11:54
I wasn’t waiting for capitulation. I wasn’t waiting for a little bit of a development of a bottom for it to start the rally and then get the meat and potatoes at the rally rather than having to come in for the appetizers and dessert. And for those of you new to this podcast, I talk about aiming for the meat and potatoes of a trade, like getting that middle section of a trade.

12:10
You don’t have to get in right at the bottom and you don’t have to get out right at the top. You want to get the meat and potatoes of the trade, the good stuff, the stuff that’s gonna fill you up. I would say not all my losing trades when I’ve shorted the market, but I would say a number of my losing trades when I’ve shorted the market in the past has on a number of occasions come from when I didn’t let the market develop a topping pattern.

12:33
Instead, it might have had a big red bar candle. I was like, oh man, this must be the top because we just had a big down day and it’s breaking through this moving average and it’s breaking below the short term support. So I’m going to get short on it and then next couple of days comes and goes and I’m already out of the trade. But I’ve learned from those scenarios where, hey, you know what, I was a little bit too aggressive on trying to get out at the top.

12:54
I remember back in 2009, 2010, that very scenario was playing out. We were fresh out of the Great Recession and a lot of people thought that we were going to retest the 2009 lows and completely crush them. Obviously, looking back, we never did, but we had a fantastic rally off of those March lows initially, and it was very tempting to want to short that rally.

13:16
And I know for a fact that I did it on a number of occasions, and it didn’t work out too well. And thankfully I was using solid stops and I didn’t take a beating on it or anything, but that was something that I picked up in my journal and I was like, man, I’m trading because I think the market shouldn’t do what it’s doing.

13:33
I don’t like the fact that the markets rallied back. It’s got to go back down. And so I traded accordingly, not according to the charts, but according to what I thought that the market should be doing. Also, I like to look at When I get out before letting the stop loss trigger, what was the driver behind that?

13:49
Was it a good decision in hindsight? Most of the time it is. There’s a few times where I kind of get burned on that, but was it based, even if I got burned on it, I can still make the right decision by having gotten out of it based off of the information that I had at hand at that time. When I get out of the trade early, I wanna see.

14:07
Was that just based off of emotion or was it based off of what the charts were telling me? Like, for instance. If I’m in a 3 to 1. Inverse ETF of the Russell 2000, right? Pretty volatile. And I get in at 25 and I have a stop loss at 23 and the stock market.

14:28
Rallies harden to the close and puts me into the red on that position, and we’re gonna close at the highs of the day on Russell, which means my 3 to 1 inverse ETF is gonna close at the lows of the day. But I don’t get stopped at a 23. It’s like at 2310. Am I going to hold that overnight?

14:44
No, cause then the potential for us gapping higher the next day and just slaughtering me on the inverse ETF is not worth the risk, so I’ll go ahead and get out early. Is that a good decision? Yeah, cause it was based on reasoning. And an approach to trading that I have found very successful for me over the years.

15:02
By the way, before I forget, what else is very helpful is swingtradingthestockmarket.com, where you can get all of my stock market research each and every day. That’s going to include updates on all the indices, what they’re doing, all the fa stocks plus Microsoft and Tesla, and weekly watchlists for both bullish and bearish stocks and the stocks that I’m watching each day, plus all the most intriguing charts that I come across.

15:26
So, Check that out, swingtradingthestockmarket.com and you’re supporting this podcast and enable me to continue to put out great content for many years to come. Another thing to look at in your journals, what type of trades were not working?

15:42
For instance, are you seeing where you do really good at stocks but you’re really messing it up when it comes to ETFs? Are you finding that you do better with 2 to 1 inverse ETFs or 1 to 1 inverse ETFs or 1 to 1 bullish ETFs? But you really suck at the, the 3 to 1s, whether it’s a bearish or a bullish ETF, the 3-to-1s, you just get slaughtered every time.

16:05
That could be that your emotions can’t handle. The more leveraged ETFs. What about stocks? Maybe you see that all the ETFs you suck up, but the stocks you do really good. Well then maybe you should focus on that. And you can continue to drill down. There’s gonna be sectors more than likely that you don’t do as well at, and you want to be aware of that.

16:27
I’m not a huge fan. It doesn’t mean that I won’t trade it, but it really has to be a good setup for me to get into a healthcare stock. There’s a lot of times where I just don’t really do that good at healthcare. I also know that my emotions are not gonna let me trade in an individual biotech stock because I don’t want to be awake all night hoping and praying to God that a native news piece the next morning doesn’t come out against my position.

16:48
So look at the sectors, look at the industries. The takeaway from all of this. Look for trends in your trading journal. Look for the opportunities to improve. There’s gonna be things that you do really well and you’re gonna wanna find those as well, just like you want to find the things that you’re struggling at, the aspects of trading that you’re not as good or need to improve on or maybe it just requires that you do a little bit more reading.

17:09
And remember too, there’s a lot of questions you wanna ask yourself with paper trading. How does it hold up during the bear market? What kind of volatility does it have? What kind of drawdowns can you expect? When the system where the strategy is not working for you. If you enjoyed this episode, make sure to leave a 5 star review.

17:25
Those things really help me guys. I can’t emphasize it enough. Also send me your emails, ryan@shareplanner.com. I read them all and I try to put almost every single one of them into a podcast episode of their own. Plus, sign up for swingtradingthestockmarket.com, man.

17:41
It’s a good one. Thank you guys, and God bless. Thanks for listening to my podcast Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

17:57
With your membership, you will get a 7 day trial and access to my trading room, including alerts via text, email. And WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block, and follow me on SharePlanner’s Twitter, Instagram, and Facebook where I provide unique market and trading information every day.

18:19
If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.