For example, suppose you notice a stock that has just had a breakout from a trading range defined by lows of about $40 and highs of about $45. Your first entry might read something like this. "ZYX Company has been in a trading range between $40 an $45 for about 50 trading days. Every time it reached $45, or even approached that figure, it backed away. On March 3, (include the year in your record) I bought ZYX because it surged through the resistance at $45 on heavy volume. My price was $46.50. It closed at $47." A good practice is to include a chart of the stock up to the point of purchase and with the buy point marked.
Now suppose that the stock falls below the breakout level on the following day. You sell because you read somewhere that when a stock falls back below the breakout point of a trading range, that the price surge should be considered to be a "false breakout." Your next diary entry might read as follows. "I sold ZYX March 4th for $44.25 because it returned to its trading range. I understand that behavior is typical of a false breakout." Include a new chart with your point of purchase marked.
A week later you review the stock's behavior and print a third chart with your buy and sell points marked and with your reasoning for each action written on the chart. Next, you examine the chart and look for any clues that you may have overlooked that might have persuaded you not to buy. For example, suppose you notice that volume tended to be less on the way up than on the way down when the stock traded within the trading range. Perhaps you also note that the volume surge you noticed was a surge of about 10% and therefore not as convincing as you would have preferred. Finally, you note that there was a band of overhead resistance at $47 that you had not noticed before because you were looking at a 3-month chart and it came into view only on a 1-year chart.
At stockdisciplines.com we try to learn from our mistakes, but we cannot learn from mistakes if we do not take the time to identify them. Always write a review of your mistakes, because those mistakes will teach you to do a better job next time. For example, at the bottom of the chart write the word "Lessons." This is where you record your analysis and observations. You might write something like the following. "I failed to look at a 1-year chart that clearly showed resistance at $47. The volume surge was only 10% and not convincing. Volume tended to dry up as the stock approached the upper boundary of its trading range and it increased when it approached the lower boundary. These were clues I should have noticed."
All your notes should be on the chart page, and the chart should cover both your buy and sell points and at least a week of stock activity after your sale. Place this page in a binder. This is the first page of your "Trader's Diary." Do the same thing for each trade.
If you have not started trading yet and you want to see how you might perform as a trader, create the diary based on paper trades. If your "trades" are imaginary, treat them as though they were real. Never change your buy or sell points after you have entered them. You would not be able to change them if the trades were real.
You will find the notes and charts of your "Trader's Diary" to be among the best resources for training and education that you have. Review your diary periodically and learn from your mistakes.
Dr. Winton Felt maintains a variety of free tutorials, stock alerts, and scanner results at www.stockdisciplines.com has a market review page at www.stockdisciplines.com/market-review has information and illustrations pertaining to pre-surge "setups" at www.stockdisciplines.com/stock-alerts and information and videos about volatility-adjusted stop losses at www.stockdisciplines.com/stop-losses