Using the Voodoo Trading Journal to Execute your Trading Strategy
Now that you have developed a trading strategy and backtested it to prove that it has a positive expectancy, it is time to start using the Voodoo Trading Journal to capitalize on the power of daily habits and ensure you consistently implement your strategy.
One of my favourite traders is "Mr. Serenity", Tom Basso. I encourage everyone to listen to Michael Covel's interviews with Tom . Listen carefully, I believe that everything you need to know about trend following trading is covered in this series of interviews between Michael and Tom. In one of the interviews Tom discusses on how early in his career he took a few days off trading to be a tour guide for his parents that were visiting from out of town. Tom is primarily a futures trader and during that week the silver commodity had a huge move. Tom explains in the interview how he missed out on one of the biggest moves of the year in the futures market because of the short trading break he took. That's the thing about trend following trading; the profits are not uniformly distributed, they usually come during short, concentrated periods that you can't afford to miss.
In the interview Tom goes on to explain that based on the lesson learned from that experience he has not missed one day of reviewing and executing his trading strategy since that experience. Even when he goes on vacation he makes sure he always has Wi-Fi access and does not miss the 15 minutes it takes him to execute his trading strategy after the market closes each day.
That is the main goal of the Voodoo Trading Journal: to capitalize on the power of routine so you do not miss even one profitable trading opportunity!
The power of journaling and its benefits are well documented. Some of the most successful entrepreneurs, such as Richard Branson, Oprah Winfrey, Bill Gates, and Tim Ferris, are big proponents of the benefits of the daily ritual of journaling. Putting pen to paper on a daily basis strengthens your self discipline and makes it easier to instil positive habits. Writing stimulates and engages your brain better than typing information into a digital device. The 15 minutes you spend daily updating your Voodoo Trading Journal will help you become a better trader.
The Voodoo Trading Journal includes a daily checklist of the steps you should go through to systematically execute your trading strategy. The journal also includes a monthly recap section where you can summarize your trading progress and document lessons learned so that you can continually improve as a trader. An overview of how to complete the daily routine and monthly summary pages are summarized below. Please visit the Voodoo Trading Journal product page if you would like to see examples the of daily routine and monthly summary pages.
Every day, after the market has closed, you should update your journal. If during the evening isn’t convenient, you can also update the journal in the morning, as long as you do it while the market is closed. There is an individual daily routine page for each day of the month. Each day you should write out your goals for the day/tomorrow outlining all the important tasks you need to complete. These goals can include both personal/work goals as well as your trading goals. The benefits of having written goals are well documented.
Each day you will methodically work through your trading strategy. First, you will complete your scans and list the symbol and name of any new potential trade set-ups in your journal. (Trading Rule #2). Next, you will review your watchlist to determine if stocks meet your criteria to potentially enter a trade (Trading Rule #3). You will enter the stock’s price info and calculated purchase price, stop loss price, and number of shares you can purchase based on your money management criteria (Trading Rule #5). Using this info, you would then place a buy stop order with you broker that would be executed the next day if your stop price is hit. The table also includes a reminder to check and ensure that you are following your trading rules for every trade. You can use the note section to record any additional trade related info. You can also use this space to record the emotions you were feeling when you placed your trades. If you are like many traders, you may find that the trades you felt most uncomfortable placing end up being your most profitable trades.
You should save the stock charts of all your holdings and review them daily to see if you need to revise the stop loss price or the profit stop price based on your trading strategy (Trading Rules #4 and #6). It is especially important to ensure that any stock orders that were filled during the trading day have initial stop loss orders placed with your broker. Remember that you can only adjust your stops up, never down. You should also check your brokerage account to ensure that your stops are still active for your longer-term holdings, as some brokers have expiration dates on stop orders. Completing this section of the journal is crucial to ensure you do not experience unforeseen losses that jeopardize your money management rules.
There is a note section on each daily page that you can use for documenting your observations on the general market or just as a general daily journal entry that could be unrelated to trading.
Trading, even successful trading, is stressful. Exercise and meditation are excellent ways to relieve stress and improve your overall health. There are many excellent books on both subjects. Look for ways to incorporate daily exercise and meditation into your daily routine. The journal also includes a section to list things you were grateful for each day. It is well documented that the most effective thing you can do to live a happier life is to focus on daily positive experiences. These experiences don’t need to be just trading related. Finding the time to include exercise, meditation, and gratitude into your daily routine will go a long way to making you a more successful trader.
Each month includes 31 daily pages, so even on weekends you should use the journal to set your daily goals, record journal entries, and document exercise, meditation, and gratitude accomplishments. Using the journal daily, even on the weekends, will instill the power of routine. The Voodoo Trading Journal can replace any other journals or daily planners that you are currently using.
Each month after you have completed the daily pages, there is a monthly summary section where you can record your trading statistics and document individual trades.
The majority of the information at the top of the first monthly summary page, including account opening balance, closing balance, dividends, commission, and interest, can be found on you monthly account statement from your broker. From this information, you can calculate your monthly dollar and percentage gains or losses. There is also an entry where you can record the monthly result of the index of the stocks you are trading so that you can use it as a benchmark against your monthly trading performance.
On the monthly summary pages, there is room to record the symbol, buy price, and date from each of the individual trades that you entered during the month. This info should be shown on your monthly broker’s account statement. If you also sold the stock during the month, you can record the sell price and date as well as calculate the dollar and percentage gain or loss. There is also space to record the R-multiple of the trade and lessons learned. For each trade you make, whether it is a winning or losing trade, you should review the chart and write down at least one lesson learned that you can use to help improve your trading moving forward. If the trade remains open at the end of the month, you should wait until the trade closes in subsequent months and come back to the monthly summary page at that time to enter the closing data.
Beside the trade data, there is a space where you can attach a chart showing the history of the trade. You can print the chart from the website of your choice and attach it in the journal using a good quality adhesive. You will initially need to experiment with the print scale to fit the chart into the space provided. You should annotate the chart showing when you bought and sold the stock as well as any other notes you want to add to the chart that will help you fully understand the trade. You may want to also shade the background of the chart green for winning trades and red for losing trades, so you can quickly identify your winners and losers.
Each time you start a new Voodoo Trading Journal, you should go through your current and previous Voodoo Trading Journals and review your historical trades. This is a good opportunity to review both your winning and losing trades to see if there are any opportunities to improve your trading strategy.
Good luck and good trading!
The Voodoo Trading Journal will coach you through the development of a written, systematic, rules-based, trading strategy and provide you with a daily routine to ensure you profitably implement your personalized trading strategy.