Trading chartbook

A chartbook can make or break your trading

Keeping a chartbook of trades you have taken might seem like such a random thing to do. A nice to have, for traders feeling nostalgic about past trades, maybe. You might’ve heard people talking about it, but I wouldn’t blame you if you didn’t think twice of it and just went on with whatever you were doing.

 

I’m here to say that such a collection of trade screenshots (sometimes called a playbook or chartbook) is much less trivial. It might even be crucial to your success as a trader.

 

Let’s try this experiment: do you keep a trading journal? If you answered “yes” here: well done! Now pick a trade from 3 months ago and look at just the numbers. From that data, you can probably see it was a winner of a loser, your R-multiple, stop loss and take profit placement, MFE and MAE and so on.

 

But without a chart screenshot,

  • can you tell what you could’ve done better on this particular trade?
  • if you could’ve entered at a better price point?
  • exited with more profit?
  • if there were chart patterns you missed?
  • if that new strategy idea you have would’ve worked out here?

 

No? That’s where a chartbook comes in. And it’s not even the only benefit of keeping track with chart screenshots.

 

Since keeping a chartbook, I found it much easier to stick to the good setups and avoid less than optimal setups. I know what to look for, but that visual double check using screenshots of past setups makes all the difference. But let’s first take a step back. What exactly is it?

 

 

The Trading Chartbook

 

Simply put, a trading chartbook is a collection of charts of previous setups. It’s up to you which setups you want to keep, but a common way of categorising your chart setups is in two collections: your best and your worst setups. Additionally, you could keep a collection with missed setups, which allows you to further review the common characteristics of setups that you couldn’t detect or didn’t feel comfortable taking but maybe should have.

 

Although entirely optional, a chart screenshot can include information that makes it easier to represent why you took (or didn’t take) the trade. Here’s an example of how such a screenshot might look. Of course, the actual annotations will be different for everyone.

 

chartbook setup example

 

The main reason for keeping a chartbook is to have a body of reference that you can use before a trading session, to get a quick visual confirmation on what you should be looking for and what kind of setups to avoid. Additionally, you should use these chart screenshots to review your past trades and refine the characteristics of the setups you’re looking at. Figure out what works and what doesn’t. How do the charts in your best setups differ from the ones in your worst setups? Find the common patterns.

 

A trading journal will give you the numbers and stats you need to improve. Adding a trading chartbook will give you clues on what you should be looking for.

 

 

Pattern Recognition Dissonance

 

detector2

 

I have recently been working with a trader who was absolutely convinced that he knew what sort of chart patterns he was looking for. However, this trader kept losing money on and off again; there wasn’t really consistency in his performance.

 

I suggested he started doing four things:

  1. make a chart screenshot just before entering and right after closing a position
  2. cataloguing the setups that worked out the best and the setups that worked the worst
  3. review his best and worst setups before each trading day
  4. doing weekly chart screenshot reviews

 

Not long after, he started to notice things. What he was looking for (a specific multi-candlestick pattern in combination with price relative to some moving average extreme) didn’t work at all! The setups that did work out, did so because of a completely different pattern, which just randomly happened to be there some of the times.

 

Keeping a chartbook and holding regular review sessions allowed him to detect what was wrong relatively quickly and figure out what was working on the setups that ended up profitably. His performance started to improve dramatically.

 

The problem this trader was facing was that a dissonance existed between the patterns he thought were working and the ones that actually gave him profitable results over a large enough sample size. Given enough luck, there would always be setups that did work out, which only enforced his idea that his chart patterns were working. Since there’s often not an immediate feedback loop (especially as a swing or position trader), there is a very real need to review trades and with it, review the patterns that actually ended up working and those who didn’t.

 

 

Deliberate Practice Pattern Recognition

 

If you don’t keep a chartbook and practice deliberately on reviewing your chart setups, there’s a very real chance that what happened to the above trader might happen to you as well. As humans, we’re often not very good at learning from our mistakes and drawing conclusions based on input that happened a while ago. We forget easily.

 

We need to have cause and effect right next to each other. If a specific chart pattern is so ingrained in what we’re looking for, we might feel that certain charts “look” pretty, without the feedback loop of actually realising that this doesn’t work out most of the times.

 

continuous improvement with trade screenshots

 

 

Deliberate practice will give you that immediate feedback loop that can potentially break this losing pattern. Routinely reviewing your trade setup charts will help in training your visual cortex with pattern and context recognition in combination with the results they triggered. Basically, it’s training your mind and gut on what it should be looking for. This worked. This didn’t. Remember so I don’t make the same mistake again.

 

If you want to know more about deliberate practice, I can very much recommend The Talent Code by Daniel Coyle.

 

Conclusion

 

Every professional trader should keep a chartbook, period. How you do this is up to you: it can be part of your trading journal (Edgewonk does a great job of integrating this in their journal), you can keep the screenshots in software like Evernote or just create print-outs of your charts.

 

I know some traders who even make full video recordings of their trading session to review afterwards, similar to what NFL players do before and after they play a game. Whatever you choose, make sure you have an easy way to review the charts quickly before your trading session and after a trading week.

 

Keeping a chartbook has many benefits:

  • It reduces the dissonance between what you thought worked and what actually works
  • It allows you to find new ways and patterns to tackle the market
  • It gives you a visual reminder before a trading session to know what you’re looking for
  • It will build confidence over time to execute your trading system flawlessly

 

Give it a try! You might be surprised at how soon you start to see new patterns emerge and your trading performance improve.

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Felix

I'm a full-time, independent forex trader. I've been trading for over 10 years and specialize in price action trading, reversal trading, trading psychology and algorithmic trading. If you're determined to become a pro trader, I offer select consulting and coaching services. When I'm not trading, I'll either be travelling the world or rock climbing (likely both). Read my story here.