Journaling trades and trading mistakes

I’ve been writing my trades in a journal since 2017 using this software called Edgewonk. It’s a software that accomplishes what can probably be done by someone who’s really good with Excel, but with a nicer UI and and some cool functionality. Not only do I record the parameters of the trade (entry, stop, take profit, size, date, gain/loss), but I can also record the reasons for putting it on, what asset class or market I’m trading in, what was my state of mind at the time, and perform a pre-mortem of common trading mistakes I’m making as I enter the trade and a post-mortem of mistakes after I exit.

Here are my trading stats over the last 5 years:

A win rate of 46% doesn’t look like anything to write home about. This blog is not supposed to be a signaling service. Don’t follow my trades, because if you do, you will win only 46% of the time!

Yet somehow I’ve made a 1181% return during those five years (calculated separately using Excel), so I must be doing something right! It’s all about making a lot more on winners than what I lose on the losers. Asymmetric bets. The Profit Factor shows I make 49% more on winners than what I lose on my losers, and that’s all it takes to make some decent returns.

One of the most important parts of the journaling process is identifying what mistakes I’m making in the course of putting the trade on, and after I’ve exited, see if I can identify more mistakes in hindset. That way I can separate process from outcome. These are the common trading mistakes I’ve identified:

Size too large: The biggest losses come from this mistake. Too large of a trade size results in sub-optimal decision making. Either you cut the loss too quickly because your stop is in the wrong place, or you don’t cut the loss at all because you can’t face locking in the loss.

Chased market on entry: Buying into overbought conditions or selling into oversold conditions. The only times this is not a mistake is if you are entering on a break of a support/resistance level with a tight stop, or trading on news where momentum can take the trade a lot further.

Initial stop in wrong place: Too tight of a stop, not enough breathing room

Tightened stop too tight/early: Pulled my stop too close to the market because I was afraid of giving up profits.

Revenge Trade: We’ve all been there. We lost money on a trade, and we put on another one to make it back. Making back lost pnl is a destructive motivator for putting on a trade.

Widened stop and lost more: This is a frequent one for me so I need to work on this. Sometimes I believe in my idea so when the market reaches my predetermined stop, I don’t cut losses. Instead I move my stop, or I “see how the market trades”. It’s a sign of stubbornness or overconfidence. My biggest losses usually have this one ticked.

No mistakes: I’m happy if I can tick this box even if the trade is a loss.

Took a low conviction trade: I usually know when I have high conviction on a trade. A low conviction trade is just the absence of that high conviction feeling, and usually only identified in hindsight

Trade error: Fat finger trade, bought instead of sold, input the wrong size, forgot to cancel an order, etc.

Faded market too early or at a poor level: This is usually a sign of impatience - not waiting for the market to reach the level where I want to get involved, and instead trading at a level that offers poor risk reward

Trade opposite to core view: If you read my last post about my process, I note that most trades come from a core fundamental view. Sometimes one gets the itch to trade opposite of that view, such as going long ES betting on a bear market rally when the core view is bearish risk and that one should be selling rallies. When you trade opposite to the core view and lose money, you’re actually losing double - the loss on the trade and the opportunity cost of not being positioned the way you originally intended when you developed the view.

Fundamental view was incorrect: Sometimes it’s hard to get the macro picture right. This often happens during turning points in the economy and regime shifts.

FOMO Trade: I included this so I can identify the feeling that is motivating the trade. Trades motivated by FOMO usually end badly. “Chased market on entry” and “Took a low conviction trade” are usually found at the scene of the crime.

Hesitated and entered too late: Sometimes hesitation is good because it indicates caution and deliberation. But when it’s driven by fear of loss or risk, that’s when it hurts you.

Overconfidence/complacency: I usually tick this one when I have a large unrealized profit and I feel so complacent about it that I fail to protect those profits, or I ignored some crucial development happening in that market because I was overconfident about the trade.

Fear of loss: This overlaps with some of the mistakes above, and I included this to capture the feeling that drives me to make (or not make) certain decisions.

Didn’t take profits off the table quickly enough: This falls along similar lines of not putting in a trailing stop, or taking at least partial profit on a position that is well in the money and where the trend is already stretched.

How do mistakes translate into pnl? When I look at my analytics, trades where I made none of the above mistakes had positive expected value, with a 56% win rate. Trades where I made one mistake had a slight negative expected value, with a 35% win rate. Trades with two or more had less than a 13% chance of winning and had deeply negative expected value. This goes to show that my process has to be perfect in order to be a winning trader. There is no room for error and undisciplined trading!