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Key Takeaways A detailed trading journal reveals your personal edge faster than any outside strategy.
Accuracy, profit-loss ratio, frequency and consistency together define sustainable day-trading success.
Your most profitable patterns are already buried in your data— mine them relentlessly.
Back in the day, there was a famous speech delivered more than 6,000 times; it was called: “Acres of Diamonds.” You can look it up for all the details, but the gist of the speech was this: A guy welcomed a traveler into his house, who told him of fantastic riches. The guy then sold his house, traveled the world and died broke. It turns out that the very property he sold was later discovered to sit on diamond-rich ground.
In an earlier article, I talked about the importance of keeping a trading journal. I can literally trace my success in day trading to having a journal with all my trades logged. At a moment of desperation — when I was going to make it or wash out as a day trader — that journal saved my bacon.
Related: I Wasted So Much Money Making These 3 Mistakes As a Day Trader
Before we can talk about how to sift and sort your pile of numbers into diamonds, let’s look at how I define success in day trading. It’s definitely not the loudest mouth on social media, who brags about the latest killing he claims he made on a stock. Funny how you don’t hear these guys talking about the times they got slaughtered on a trade. And I’m here to tell you — with more than 25,000 trades under my belt — that we all have some real bad days from time to time.
The first measure of success in day trading is your accuracy. Out of your last 100 trades, how many of them made money? It’s a fundamental question, like your baseball batting average. Of all your at-bats, how many times did you score a hit? Accuracy is crucial. If you’re mostly wrong, you won’t last long.
But accuracy is only one dimension; just as important is your profit/loss ratio. Over those 100 trades (or any other time period), how large have your winners been compared to your losers? You could have fantastic accuracy and still lose a lot of money! How? Because your 90 winners were tiny, and those 10 losing trades broke the bank. This happens when traders make a few bucks, get jittery and bail out, but they ride their losers down and down. Accuracy and profit/loss ratio can cancel or amplify each other.
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