Why trade Log is needed?
In my last article I discussed things you should keep in mind after creating Demat Account. This article assumes you have working Demat account and ready to buy and sell shares. But before placing your first BU order let me ask you Do you have a trade log in place?
The answer will be No. Even people who are in market for quite sometime do not have trade log. Most of us think that all buy and sell orders are tracked in your Demat Account. So what is need of creating an additional document which will consume your time and effort.
You can easily download the reports from your Demat account and get the profit or loss details. This argument is flawed. The reason is trade Log is not for tracking profit and loss. Yes tracking profit and loss is one of the uses.
But it is not the only use. We use Trade Log to capture your thoughts and rationale behind each investment. This is your experience in market listed in words. Note experience is the most important ingredient for success in stock market.
We will see importance of maintaining trade log and will share a trade Log format in Excel. This will help you. It is recommended to read the article in full before using the Trade Log.
Format of Trade Log
As mentioned above I will share the Excel format link by end of this article. You can download the format for free.But let me discuss various fields in the Excel sheet which will help you understand it better and make full use of it.
Sometimes you hear about a stock from your friend. After his or her recommendation you Buy it. Sometimes you hear it in News Channel or any other media reports. There are various sources from where you know about a Stock.
In the Source column you should mention Source from where you got the Investment idea. Some programs told you about the Stock with target. You then bought the Stock. 6 months down the line you will forget the Source which recommended the Stock.
So Enter the Source name in first column. If the Investment decision is made by you (Your Own research then you should put Your Name or Self in Source).
This is the company name you are Buying or Selling. This should be detailed or better the NSE or BSE Scrip code so that you can Identify the Company.
Enter the Date when you bought the share.
Enter the Quantity you bought. Remember we should not invest more than 10% in a single share and never buy all quantity in one order.
There should be gap or one or more month between two Buy orders for stocks. Note this is not the hard rule but you should follow it most of the times.
Enter the price you bought the share.
This is perhaps the most important column of the Trade Log. The reason why you bought the Share. You should explicitly tell yourself or convince yourself that this is good share and should be bought. You should explicitly mention all the reasons here and then go for a Buy.
Note if you are unable to convince yourself then you should not Buy the share. This is the litmus test. This column helps you eliminate your Gut Feeling Buy decisions from a informed Investment decision.
Holding Period has 3 values.
Long Term – More than 3 years
Medium Term – More than 1 but less than 3
Short Term – Less than 1 year
You should decide what should be best holding period for this stock. Note we will cover more articles in future which will help you determine it.
This is the risk associated with this stock. For example Rising Oil prices means Oil marketing companies will get hurt. So prices of Oil marketing company shares depend on Oil prices. You should explicitly list out the risk with the company.
This help you identity the news which will help you decide if you want to exit from the stock.
This is the price where you will decide if you want to sell the share. This should be well thought price. Also you may consider entering or Buying additional shares at this price.This price should be treated as evaluation point.
At this price point you should rethink your investment. You should think whether it is good decision to book profit or invest more money in this stock. This point decides if the stock can be moved from Long term investment to short term or medium term or vice versa.
The time period by when the stock will reach at target price. It should be in months or days or years. If the target price is not reached by this period you should evaluate reasons. This will help you decide if you want to hold the company or sell it.
This way your decision is informed not impulsive. Mostly people make impulse decision not informed decision.
Enter the Date when you sold the share.
Enter the quantity of shares you sold. Sometimes we sell entire holding and sometimes we sell part of it.Selling entire holding is termed as Exit from the stock.Selling part of it is known as partial profit booking.
Enter the price you sold the share.
Like Buy Reason column this one is also very important. Every sell decision should be backed by reasoning. Why you want to sell the share? This should be detailed backed by reasoning. Whether you want to partially exit or profit book you should write detailed reasons here.
In case of exit in loss you should evaluate your Buy decision and rethink what went wrong in your decision. What parameter you did not consider or was wrongly interpreted by you. These should be also detailed in Sell Reason.
Profit / Loss Percent
This is mere calculation of Profit and Loss on your trade.
You can share your queries and suggestions below. The Trade Log will be useful if you are honest with yourself and provide as much detail as possible in Buy Reason and Sell Reason. It does not matter if your initial trades are in Loss.
You have documented decisions. Based on these documented decisions you can make better decision in future. This is sole aim of the Trade Log. To help you make better decisions based on your past Investment or trading decisions.
Download Trade Log
You can download the trade Log we discussed earlier for free. It is created in Excel format. You need to enter your Email ID below. The download link for the file will be send to your Email.
You can click on the Link send to your Email to Download the File. After downloading the file you can open it using Microsoft Excel or Google Sheets. Both will work fine.