Resultra is for project tracking, but its origins and methodology are based upon a type of trading called “rule-based discretionary trading”. This style of trading is systematic and rule-based, but also leaves room for discretionary decision making; Resultra brings the same type of methodology to project tracking.
Since Resultra is positioned as a tool for project tracking, trade journaling is an interesting (i.e., a little bit unorthodox) use of this tool. However, tracking a multitude of trades from a watchlist, then entry and exit is not unlike a project. To the extent each trade has a well-defined workflow, start and finish, Resultra can certainly be used. At the very least, showing how trade journaling works in Resultra provides a good reference point to Resultra’s origins and demonstrates how flexible Resultra can be to support different types of projects.
Benefits of Trade Journaling
A best practice is to meticulously catalog and track trades using a journal. Among other benefits, trade journaling helps a trader become more disciplined, learn from mistakes, progressively refine their trading rules, observe patterns and anomalies, and measure performance.
A trade journal also serves as a scrapbook of sorts to capture what is observed during a trade. For example, the trade journal can include screen captures of stock charts when a position is opened or links to news which may affect the stock’s price.
Rule-based vs. Discretionary Trading
In my own experience, I’ve found it useful to start with proven/textbook trading systems and rules, but to use some discretion to experiment with different risk control and money management techniques. Moreover, as market conditions change, I’ll use discretion to increase or decrease risk, be more selective with entries, etc. In general, I view this as having about 70% rules, with 30% discretion to improve upon the rules and be responsive to market conditions.
One more note on 70% rules versus 30% discretion: I believe there is a tendency to focus too much on the rules. Focusing too much on the rules leads to being inflexible when market/business conditions change, not being alert to patterns and anomalies, and not using discretion to manage risk and uncertainty. In trading, it would be great if you could trade with only a list of hard-coded/textbook rules, then sit back and watch the money come in; in my experience, however, this is not a way to get an edge on the market and to minimize losses. Keeping a reasonable allowance for discretionary decision making helps to manage uncertainty, adapt the rules for different types of trading, and to stay alert to ever-changing market conditions.
Tracking Long-only Position Trading
There are literally thousands of ways an individual trader can trade the financial markets. For example, a trader can focus on different asset classes, such as individual stocks, ETFs, commodities, or currencies. Traders can also have different time-frames for holding positions, such as intraday (day trading), days to weeks (swing trading), or position trading (weeks to months).
As an individual trader, I mainly focus on position trading with stocks, where I’ll hold a position anywhere from a few weeks to a few months. Moreover, I also only take long positions, so I purchase shares of stocks with the expectation the price will go up, then sell the position for a profit. Compared to short-selling, day-trading, options trading, and other more advanced types of trading, long-only position trading is fairly straighforward. For purposes of illustrating how Resultra can work with trade journaling, long-only position trading is therefore a good representative example.
An Example Trade Journal
A trade journal is relatively easy to set up in Resultra. Resultra’s support for custom lists, dashboards, forms and table views is well-suited to trade journaling. For each of my own trading systems, I set up a different tracker; then, as the system evolves over time, Resultra gives me the flexibility to also change the tracker; for example, I can add a new checkbox to a form, or add a column to a table view.
For the “long only position trading” described above, the following is what a trade journal could look like in Resultra. Before entering a position, a symbol is first added to the watch list. In the watch list, comments can be added, such as for relevant news. There is also a watch level rating; for example, stocks which are imminently setting up for entry would have a higher watch level.
One of the key features of this example trade journal is the entry form. In this form, an assessment is made regarding the risk versus reward, which is used for decision support to proceed with the trade or not. The entry form also includes a note field to capture the reason(s) for entering the trade and a screen capture of the price chart at the time of entry. The price chart is very useful to get a snapshot of what you were seeing at the time of entry.
Based upon the risk assessment in the form above, and with the given risk control parameters, Netflix (NFLX) is an acceptable entry (as of May 3, 2018). In particular, the R value (reward/risk) is above 2, which is good enough to justify the entry. Secondly, for risk control, most traders never risk more than 2% of their trading account value on a single trade. In this example, assuming a total account value of $25K, the total amount at risk is $200, which is well below 2% of the account's value. (disclaimer: the above example is for information purposes only).
Once a position entry is recorded in this trade journal, the symbol being tracked is added to the open position list. From this list, the position can be tracked with additional comments. After exiting a position, the exit information is also recorded in the trade journal, and summary statistics can be calculated. After closing the position, a post-mortem analysis can also be performed to look for ways to improve future trading.
Further Customizing a Trade Journal
The trade journal described above could be used to track a ‘textbook’ trading system. In other words, the type of rules for risk management, position sizing, etc. is what you’d find in many beginner trading books or guides.
Over time, however, traders inevitably deviate from textbook strategies to use more advanced or unconventional techniques or strategies. For example:
- Instead of placing stop-losses within a percentage of the entry price, use ‘volatility stops’ which consider the stock’s historical volatility.
- Using your own positions as a starting point, back-test and/or forward test alternate strategies for money management, existing trades, etc.
- Track additional variables, such as earnings or news reports and measure their correlation with performance.
- Adapting the strategy to a new asset class. For example, using the strategy with ETFs instead of individual stocks.
In general, trade journaling encourages critical thinking, observation, disciplined risk control, and continuous improvement. Arguably, these activities are the most important activities of any project or human endeavor. To the extent cataloging and tracking trades in a journal can be thought of as a project, the same kind of benefits can also be realized for projects outside the discipline of trading.