The trading journal
Without records, you remember your winners and forget your losers. A journal is the only tool that shows you your actual performance.
Ask someone their win rate, and you get an estimated number. That number is almost always too high, because memory is selective.
A journal fixes that. Before every trade, note what you're buying, why, where your exit sits, and how much you're risking. After the exit: what actually happened, and whether you followed your own rule.
That last point is the most important one. A trade can win even though you broke your rule. That's not success, that's luck, and luck doesn't repeat.
After fifty entries, you'll see patterns that were hidden before. Usually uncomfortable ones: that losses cluster on certain days, or that all your good results come from positions you held longer.
The methodological core is separating process quality from outcome. In environments with a large random component, any single outcome is a weak signal of decision quality. Judging by outcome alone leads to outcome bias, where good decisions with bad outcomes get discarded and bad decisions with good outcomes get kept.
Recording before the decision is essential, because retrospective notes fall prey to hindsight bias: once the outcome is known, it seems more predictable than it was, and the remembered reasoning adjusts to match. Only a thesis fixed before the outcome allows a reliable evaluation.
Useful metrics to track include win rate, average gain and loss, expected value derived from those, and the share of rule-compliant trades. A breakdown by conditions is also revealing, say by time of day, instrument, or market phase, though the sample size per subgroup quickly gets too small to support reliable conclusions.
Summary
- Memory systematically overestimates your own win rate.
- Write the thesis down before the outcome, or it adapts to fit.
- Judge the process, not the single outcome.
Did you get it?
What is outcome bias?
Judging a decision by its outcome rather than its quality.
Why does the thesis need to be recorded before the outcome?
Because of hindsight bias. Once the outcome is known, the remembered reasoning adapts to fit.
What metric matters more than win rate?
Expected value, together with the share of rule-compliant trades.
Related
- Win rate and expected valueStage 2
- The one-percent ruleStage 2
- Confirmation biasStage 2