Monday, June 1, 2009

Trade Journals

I often like to offer up a recap of recent trades I've finished for you to mull over. I'm a strong advocate of journaling trades as a method for identifying and reinforcing effective trading techniques as well as for identifying and rectifying poor trading techniques. Journaling is particularly important in the beginning stages of your learning process. When I first started trading I printed a word document containing a chart and trade journal of each trade. I've still got the 3 ring binder full of them. I now do it all electronically and truth be told, I don't journal as much now that I have internalized all my rules and trade management techniques.

In addition to recording my entry & exit details, two common analyzation questions I pose are:

1. Did I plan my trade & trade my plan?
Consistent results are a direct byproduct of a consistent approach. I have set management techniques for each type of strategy (naked put, credit spread, iron condor, etc...).

2. Did I maximize my gains and minimize my losses (to a reasonable extent)?
Irregardless of your trading methodology or style, in the end becoming a profitable trader is all about maximizing your gains and minimizing your losses. Whether your day trading futures or position trading stock, the end goal remains the same- make as much money as possible on the winning trades, and lose as little as possible on the losing trades. That, my friends, is the trading recipe for success. The trick is not only knowing how to do it, but also possessing the discipline and emotional fortitude to do it habitually.

I've learned the hard way that knowing what to do, and actually doing it are two different things altogether!
May 18th:

TRADE SETUP:
Oil is currently in an uptrend with a 3 day retracement. I’m anticipating a continuation of the trend (Neutral to Mildly Bullish). I also don’t mind buying shares of USO if it falls.
STRATEGY: Sell Short term, OTM put options (USO @ $31.50, sell June 30 puts):
Sell 5 June 30 Puts for $1.00
Net Credit = $100 x 5 = $500
Max Reward - $500
Max Risk = $3000 x 5 = $15000 (This is merely theoretical risk! – Oil is not going to $0 in 5 weeks!)
TARGET:
Buyback puts at $.20 or better
TRADE MANAGEMENT: Allow assignment if USO drops beneath $30 by June expiration (results in buying 500 shares @ $29 cost basis). Then I could sell covered calls against my long stock position.

Did I plan my trade & trade my plan? - Yes

Did I maximize my gains & Minimize my loss ( to a reasonable extent)? - Yes- Closed position when hit profit target
Tyler-

1 comment:

Mike said...

Another informative and useful post on trade and trade management. I read your post till last. You described each and everything in very detail. hats off to you!
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