Trading Tips:

Peak Performance Trading Tips from Dr. Van K. Tharp.

This section features Peak Performance Trading Tips. These won't be tips on some hot new investment. Instead, they'll be tips on how you get yourself in the best possible condition mentally to perform at a peak level. You may have heard some of them in one form or another before, but you can never apply them enough. As a result, these tips should become second nature to you.

Tip# 40
The Art of Journaling, Part One

by Brian June and Van K. Tharp

At the end of the trading day, your first impulse is probably to shut down all your equipment and get far away from trading. Trading is a strenuous activity, much like taking an exam. If you can remember the feeling of a very strenuous all-day test, like taking the SAT college entrance exams, the trading process is the same - it drains you. The reason it drains you is because you are using large amounts of your brain processing capacity while you trade.

Even though you may feel drained at the end of the day, you need to either discipline yourself to continue on with a daily debriefing process or to discipline yourself to come back and do it at a set time that evening. The daily debriefing is a critical part of your trading success. This process will have a critical impact on your bottom line-a positive one if you do it and a negative one if you skip it.

There are several steps to this debriefing process, including:
1) reviewing your trades;
2) determining whether or not you made mistakes during the day;
3) learning from your mistakes when you do make them;
4) doing periodic reviews; and
5) refining the process of trading.

Review Your Trades: Live and Learn
When you use today's direct access trading software, you will have a record of every trade you make during the day. We strongly suggest that you take that raw data and put it into a database of some sort that will make it useful for you in the future, so that you can understand your trading patterns. The simplest suggestion would be to use an Excel spreadsheet. That spreadsheet is divided into nine columns, with each row being an individual trade.

The most critical elements to include in your spreadsheet (as column headings) are the following:

1) Date and time
2) Symbol for what you traded
3) Your entry price
4) Your initial risk (i.e., your stop price)
5) How many shares you traded
6) Your total risk exposure in that trade (which we call R)
7) Your total gain or loss
8) Your R-multiple
9) Your commission amount. [This technique is described in detail in the Market Mastery, February 2000 issue.]

Your Level II software will write the price for the entry and exit and the number of shares traded to your hard drive, but you will have to copy this information to your spreadsheet and fill in the blank columns. In addition, we also suggest that you make notes at the end on why you entered and exited that particular trade (if you can remember) and any emotional reactions you had to the trade. Since important psychological information is both subjective and qualitative, the sooner you do it after you finish trading, the more likely you are to remember what happened.

Environmental Influences: When you're doing your journal, capture as much information as possible. Did environmental influences have any impact? Note the lighting, outside distractions such as children or spouses talking to you, distractions such as telephone ringing, anything having to do with the environment external to yourself. What will happen over time is if you pay attention to these things, you'll learn to set your environment up in a way to reduce or eliminate their impact on your trading. Minimize your negative environmental factors and enhance the positive ones.

Personal Thoughts: Your thoughts have a great effect on your trading. So keep a journal of your thoughts when you are not under intense pressure from trading with a time stamp for each thought. Notice how you are thinking during the day and how those thoughts are impacting your trading. For instance, when you lose money on a trade, what do you say to yourself? If you're using words like stupid, ignorant, loser, or using phrases like "I can never do anything right" or "I always do everything wrong", you're using very disempowering language. You're teaching your brain to actually attract the negative as opposed to attracting the positive.

To see if that's true, try the following experiment. Right now, do not think about the color blue. Concentrate on not thinking about the color blue as long as you can. Are you ready? Try it right now. Do not concentrate on the color blue. What happens? What happens is, the only thing you can think about is the color blue. We have talked before about the influence of positive self-talk, so here, when we're talking about our personal thoughts, we're really talking about the thoughts and the words that we're using to say to ourselves.

If you catch yourself using negative self-talk, concentrate on positive issues. Reward yourself verbally and mentally when you keep your trading rules, meaning you made a good trade. Do not punish yourself when you do not keep your trading rules. Instead, use something more empowering. For instance, if you break one of your trading rules by failing to stop out when your rules dictate, don't say to yourself, "Dummy, you didn't stop out!" It's better to use language such as this: "I recognize that I broke my trading rule. I assume personal responsibility for that. Next time, in order to enhance my self-worth, I will adhere to my trading rule." These seemingly small things make a big difference. And you are not likely to recognize these changes unless you've taken the time to make a journal. Because once you've taken hundreds or thousands of trades, you simply won't remember anymore. That's when you can get yourself into trouble as a trader.

Market Influences: As much as you can during your journaling, notice the market influences for each trade. I go back to my five indices that I keep all the time, the Tick, the TRIN, the S&P futures (first forward contract), the Nasdaq composite and the Dow Jones. I write the trades down, then I write down in the condition of these key indices, so that I would know whether the market was positive, negative, up-trend, down-trend, or consolidating. You will also want to include in this spreadsheet the impact of news, positive or negative, and any sector news. For example, if you're trading biotech stocks, it's important to know how the other biotechs are trading at the time. If you're trading Internet stocks, then note what the Internet Index is doing.

Equipment and Support: You should note these types of problems in your journal. For example, note when your data feed, software, or your ISP go down and how you dealt with it. What happens when you have computer problems? If they are impacting your day, then make a note of that in your journal. As an extra benefit, with your connectivity and computing history captured in your journal, you'll be able to troubleshoot problems much more effectively.

In Part Two of this tip we will continue with the key to debriefing, the importance of following your trading rules, and the four categories of mistakes.

Editor's note: This article is excerpted from "Financial Freedom Through Electronic Day Trading" by Van Tharp and Brian June.