The Road to Successful Trading

 
 
 
 
 
 
How to Design and Construct An Effective Trading Plan 
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Chapter 7: Setting up a Trading Journal 
It’s a simple but uncomfortable fact: losing trades costs money and all traders have losing trades.
There is zero probability that a trader can develop a system that yields a 100% win-loss capability 
because the chaos factor of unknown events and the infinite permutations of variables make it so.
Losing is part of trading. But consider the fact that a trader can continually strive to reduce the 
number of trader induced errors and that pursuit of perfection usually makes the difference between 
success and failure as a trader. As a trader, you are happy with a high probability trade of at least 
65% but that still means a 35% loss rate. 
Making miscues like not following trading procedures or misreading selection indicators will cost 
money that may have been avoided. By not trying to learn from past trades will cost even much 
more money. 
 
Trading is a process of continuous learning. If a trader pays close attention to what was done wrong 
or could have been done differently in past trades, a trader can greatly improve future performance.
For example, a trader may notice that there is some commonality in certain trading situations. In 
fact, by doing a postmortem on all trades, a trader may be able to identify indicators with high 
degrees of confidence. Likewise, a trade postmortem may reveal a flaw or omission in proper 
trading procedures. In any case, a trader must make every effort to limit losing trades and a 
thorough trade postmortem is an important part of each trade. 
The trade postmortem and analysis is the final step in closing out a trade. A trade has not been 
completed until this vital step has been accomplished. 
Capitalize on losing trades by looking for weakness in your assumptions and implementation.
Don’t just assume that “the market went against me” or “the market is unpredictable”. Try to find 
out what happened in as objective a way as possible. Don’t let your ego get in the way. After all, 
there is treasure to be found in winning and losing trades. You just need to look for it. 
So, once you develop your trading system, you need to constantly monitor its performance and 
make certain that it’s being implemented the same way, every trade. If your system isn’t working 
the way you expect as had been established by paper trading and experience, then there are two 
possible reasons: 1) the system isn’t valid or; 2) it’s not being implemented properly and 
consistently. 
How to Design and Construct An Effective Trading Plan 
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Indeed, there are times when there may not be a clear reason and that’s because of the “chaos 
factor” of the infinite chain of events that can subtly affect the movement of an investment. That’s 

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why traders get giddy over a 75% win ratio. However, without analyzing what happened, you pass 
up any opportunity for discovery and any affective alterations to your trading system. 
Yes, trading is all about discipline and consistent implementation of your system. Do you follow a 
checklist for every trade? When you find a good trade and your heart is beating faster as you are 
about to click on “confirm”, have you consulted your checklist before pulling the trigger? Have you 
become so adept at entering your orders that you feel you don’t need to double check your 
procedures? Are you even aware if you’re consistent in your trading routine? As a human being, 
chances are you don’t do all of the things you should be doing all of the time. And my friends, it’s
the mistakes and oversights that can bring you to your knees. So, what is the best way to avoid 
costly mistakes and evolve as a trader? The answer is simple: The Trading Journal