By MoneyMorning.com.au
“Know thyself…”
That inscription stood in the forecourt at the Temple of Apollo at Delphi for 763 years.
The temple’s rubble now. The Christian emperor Theodosius I flung out the Oracle of Delphi and razed the temple in 390AD. But this 2384-year-old Ancient Greek maxim has stood the test of time.
And believe it or not – it’s a stock trading secret. One that holds the key to trading this market successfully – for fun and for profit.
When Slipstream Trader, Murray Dawes started out on the trading floor in Sydney, his job was to stand behind a trader in the pits and communicate with the brokers on the phones with trading floor ‘sign language’. He stood there day after day watching the markets trade. Murray would see prices go up. And prices go down. He started to notice patterns. And trends. Movements he thought he could spot in advance and profit from. And then he did the most valuable thing he ever did to become the trader he is today. And it’s the same thing we’re urging you to do…
He wrote it all down.
Unless you understand how you work and how the market works, you’ll never improve as a trader.
The best way to know thyself, Murrays says, is to keep three trading journals.
Yes, this does sound like work. But once you get in the habit of writing down your thoughts after each trading session, you could do it in as little as 15 minutes a day… you’ll be amazed by the extra confidence and improvement you’ll make.
Write your thoughts down after every trading session. And when you do, write with this goal in mind: Your aim is to increase your awareness of your own behaviour… and increase your knowledge of the market’s behaviour.
1) Keep a Market Journal…
In this journal, keep notes on different things you observe in the market. Jot down patterns you believe may be profitable… Or just thrash out ideas for money management strategies. This is the key journal to find a trading method that works for you.
Print out charts and scribble comments on them. Write out what you expect could happen for the day. And then review how right – or wrong – your view was.
Add any insights you get from this review to a list. And use that list to make goals for reviewing charts and possibly back-testing ideas.
2) Keep a Trading Journal…
In this journal, keep track of your trades. Set out what actions you believe you should take for each trade before the trading day starts. Stop losses, targets and risk/reward are all important here. Also, you can go deeper into your performance to understand win/loss ratios, average wins to average losses, biggest drawdown, biggest win, volatility of returns etc.
This is where you will find clues about your strengths and weaknesses. And this will give you areas for improvement to focus on in the future.
It is important to compare what you were supposed to do with what you actually wind up doing. It is in this difference you will find the keys to your own psychology.
3) Keep a Psychological Journal…
This journal is for when you have found a method that works for you, but know there is a difference between having a trading plan and sticking with it.
This is the journal that will help you become a profitable trader.
If you are really honest in answering questions like, what made me buy? And, what made me sell? Was it nerves, excitement?… and if you are able to decide not to trade when you feel angry or confused… you will be amazed how many dumb trades you will avoid.
I would add that your journals are not just to pull you up for things you’re doing wrong. You should also use them to uncover what you’re doing right.
If you have a good win, it’s helpful to know what you did differently… so you can do it again. Were you feeling calm and focused when you traded? Did you have a strong intuitive sense that this was a good trade to make? Was there a set of indicators that you used to filter out the opportunity that you might be able to formulate into a trading plan for the future?
It’s only through reviewing your trading decisions that you will improve.
Not many people have the dedication or the discipline to put the work in outside of trading hours to improve their performance. Often it’s just the thrill of trading that drives people. And when this is the case they usually lose money.
Aaron Tyrrell
Editor, Money Morning
P.S. Click here to see his new video market update, released Wednesday, to find out where the market’s heading next… and how ‘scarily accurate’ you could become if you start using Murray’s system.
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For editorial enquiries and feedback, email moneymorning@moneymorning.com.au