Stock Trading Record Keeping
Important Key to Profitable Trading
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Stock trading record keeping is perhaps the most boring of topics we discuss. Nobody is interested record keeping. When I was researching key words for this article I found there were 28 searches per month for "Stock trading record keeping" but 6,600 searches for "stock trading tips". So this is my stock trading tip for you the reader: You will not make one dime trading markets unless you learn good record keeping habits. Please continue to read.
Record keeping is possibly the most important topic to understand for the wannabe trader. Without good record keeping a trader is going to be drifting and lost on a sea of confusion. Without record keeping the new trader is unable to measure his progress and he will simply flit from one trade to another with no understanding of the process. Without learning this new trader is doomed to failure.
By now you may have grasped that one of the most critical skills you must learn to make this methodology work relates to your skills at order execution. This is not a passive approach to trading, but rather one that puts you in front of one or more computers every trading day and requires you learn to get into and out of markets at the best price possible while at the same time observing the most sacred of all our trading rules: “YOU MUST TAKE ALL THE TRADES”.
And so at the end of the day, assuming you have taken all trades, you will have a bunch of numbers representing prices the system got into trades and prices that represent the actual prices of the orders you executed.
How these numbers line up determine not only what your profits are, but they determine how you as a trader are doing in learning these critical skills. Without good stock trading record keeping you are not going to have a clue regarding how you are developing as a trader. But I also believe that if you fail to keep good records you will soon lose interest and lose faith and become a kind of “trader drop out”. You should not let this happen. You can, with persistence and patience, earn a lot of money doing this and keeping good records will help you stick with the system through thick and thin.
Your main tools for keeping records is a spread sheet program. When you have put Trader Bob’s computer on your desk top you will find a spread sheet program there as well as his work sheet for entering all these trades as well as a sheet or two with all the examples we discuss here.
So in order to keep things simple and understandable let us go through the process of entering one day of trading nearly nine years ago. This is from Trader Bob’s personal records and represents real time trading with real money. The amount being traded here was larger than what many readers normally deal with when trading. On 3/22/01 this account size was at about $150,000.
I do not wish to confuse you with this spread sheet. For purposes of this discussion all these trades appear as if they were entered and exited the same day. In reality all these trades were entered the previous day and were exited on 3/22/01. The trades that were entered on 3/22/01 but held overnight will be entered into a spreadsheet for the next day and dated on the day the trade was exited, 3/23/01. These spread sheets and examples are included in the trading package (see Automated Stock Trading Software).
Filling out this sheet is simple. For example let us take the last market NEWP. After listing the name of the market we enter the number of shares bought (400). Then in column C we enter the exact price the system bought at (35.5). Then in column D we enter the exact price that we actually bought the stock at (35.94). Then in Column E we record the exit sell for the system (39.25) and then in column F the actual exit price (39.10). The spreadsheet program will do the remaining calculations. It shows the system profits (1,500) in column G and the actual profits before commissions (1,254) in column H. In column I is probably the most critical figure, negative slippage on this trade amounting to negative 236 shown as (236). In other words we made $236 less than the system made before commissions.
Column J simply shows the amount of money we had to commit to each trade.
But not all slippage numbers are negative. Notice that CIEN made 353.05 more in real dollars than the system did. This is a typical pattern you see with “pajama trading”. Sometimes we do better than the system and sometimes we do worse.
If you place resting orders with a broker you will always do worse. That is why we say this methodology will work only if you "pajama trade". With pajama trading it is possible to trade at close to zero slippage and that means we can pile up large profits with a lot of small trades and that means we can limit disaster trades and large draw downs. (see Stock Transaction Costs if you have not already read it) The real time results posted on this web site should speak for themselves.
Once again "pajama trading" means you are sitting in front of your computers the entire time the markets are open and you are executing orders at the market as they come up on the computer. You let the computer decide the markets to buy, but you are the one actually executing the order. You do not place resting orders with your broker. You do not choose the days you want to sit in front of your computers. You sit in front of the computers every day that the markets are open. This is your full time job and if you do it right it can make you rich in a few years. Believe in yourself and believe in your job!
But Pajama trading is not for everybody. You must have the time to be free 6 and one half hours every market day to sit in front of those computers. You should find watching markets interesting and it should not cause you undue stress.
But our methodology will not work unless you learn to pajama trade. Otherwise transaction costs will eat you alive.
What if I miss a trade? Answer: You should avoid that if all possible, but if it happens, you must enter the trade and the numbers for the system. If you missed a losing trade you make positive slippage. If you missed a winning trade you get negative slippage. But if you start missing many trades and start trying to guess winners and losers you will fail. By forcing you to enter trades not taken we are trying to get you in the habit of always taking all trades no matter what.
We keep a spread sheet for each day and then cut and paste the data into a second sheet for the month and then of course at the end of the year we cut and paste the monthly sheets into a third sheet for the entire year.
The slippage numbers are your “grade” as a trader. Profits are not your grade; your grade is the slippage numbers on these spread sheets. Work every day to improve on these numbers and your profits will follow. The system has ups and downs but CANNOT fail and will always make money over time. But you as a trader CAN fail if you miss many trades and fail to get good slippage numbers.
OK now let’s look at bottom of this same spread sheet:
The first green numbers are the amount of commissions we paid in 2001, $23.95. The second green number represents the actual real time profits we made AFTER commissions, $5,840. The rest of the figures are more or less self explanatory. But the critical figure is in red. That is the total transaction costs per trade.
It should be noted that with Jordi’s Intra-Day2 and investing only $500 per position our average trade is probably only around $25 and so if we have to pay $22 in transaction costs per trade we are not going to be making very much money.
That is the bad news. But this is the good news. Commission costs have fallen out of bed since 2001 and there is no reason you should pay more than $4 for a round turn trade. That is going to make a huge difference for those of us trading Jordi and to illustrate I have taken the exact same spread sheet and entered the same figures EXCEPT I have entered commission costs as $4. This is what the spread sheet then looks like:
What a difference! And with stock market transaction costs cut down to two bucks we can certainly trade Jordi with only $500 committed per trade and make excellent profits over time without giving it all back in transaction costs.
But you must be in front of your computers if you expect to be able to get these kinds of results. And to measure your progress you must learn to be religious about your stock trading record keeping.
Imagine a distance runner training to set a world record for 10 kilometers and training without a stop watch. If you fail to practice record keeping on a daily basis that is exactly the position you will put yourself in. You are training to become a great trader and to become wealthy. It is going to require hard work and training and you must measure your progress daily.
In order to trade this short term stock trading methodology you must learn to pajama trade and that is what this record keeping is all about. The bottom line is that if you cannot keep good records you are not going to see good profits.
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