Case: audit a journal and find the leak

A journal audit has one question: where did the money go? The tempting answer after a bad month is "the plan is broken, I need a new entry rule". An audit doesn't start there. It starts by splitting the journal into two piles: the trades done by the plan and the trades that broke it. That is what the plan_followed column in a trade journal is for (the journal itself comes from Practice account, starting small and the journal).

Then add up each pile separately, after fees. The two totals answer different questions. The plan pile says how the rules perform when you follow them. The break pile says what your departures from the rules cost.

Nora's March on the Pebble practice account: 40 trades, −2,190 after fees, a plan that risks 100 to the stop. Her 31 plan trades: 17 winners worth +2,856 and 14 losers at exactly −102 each (100 to the stop plus 2 in fees), so +1,428 in total.

The second pile is the trades that broke the plan. In Nora's journal there are 9 of them, and together they lost −3,618 after fees.

Always check that the two piles add up to the month's result: +1,428 from the plan trades and −3,618 from the breaks give −2,190, exactly what the account shows. If the sum doesn't match, a trade is missing, counted twice or labeled wrong, and every conclusion after that is built on sand.

Now compare the sizes of the two piles. Nine breaks lost two and a half times what 31 plan trades earned. The month's loss didn't come from the plan; it came from less than a quarter of the trades.

That changes the question. It is no longer "which entry rule is better?" but "what happened in those nine trades?" A new entry rule would keep whatever caused the breaks and throw away the part that worked.

Once the breaks are set aside, the plan pile can be read as a small test of the rules. Its average result per trade after fees is the expectancy from Expectancy: the average trade in module 4: 1,428 ÷ 31 = 46.06 dollars per trade.

Look at what sits behind the average. 17 of 31 plan trades won (55%), averaging 168.00; the 14 losers were all exactly −102.00, because the stop did its job. Small, equal losses and larger wins: that is how a plan is supposed to behave.

Then add the honest caveat. 31 trades is only just past the 30-trade minimum, in one month, on practice money. That makes +46 per trade an early sign, not proof that the plan works. The audit can say "the plan is not where the money leaked"; it can't yet say "the plan makes money".

After splitting and pricing the piles, read the break pile line by line with three questions: when, how big, and where did each one exit?

In Nora's journal the answer repeats nine times. When: minutes after a losing trade (trade 5 at 11:51, twelve minutes after trade 4 lost; trade 11 seven minutes after trade 10). How big: (entry − stop) × size = 200, double the plan's 100. Where out: the losers ran 1.8 to 3 stop distances below the entry, so the stop was moved or ignored.

This pattern has a name: revenge trading, going bigger right after a loss to win it back fast and refusing to take the next loss. Module 8 looks at the feelings behind it; an audit only needs to see the pattern and its price.

Patterns that don't repeat (one instrument, one weekday) are noise. Check them, then drop them.

A stop is the price at which the plan admits a trade was wrong, set before entry (the stop from The stop: where it goes and why in module 3). Its whole value is that the loss is known in advance. Moving it lower "to give the trade room" removes that value.

Trade 5 shows the cost in one line. 50 shares, entry 56.25, planned stop 52.25: at the stop the loss would have been 50 × 4.00 + 2 in fees = −202. The stop was not respected, and the trade exited at 45.45: 50 × 10.80 + 2 = −542. The moved stop alone cost 340, on top of the doubled size.

A second loss within minutes feels unbearable, so hope takes over, and hope has no exit price. That is why the fix is mechanical: the stop goes in together with the order and is never moved further away.

To know what a habit costs, replay the same trades as if the plan had been followed: same entries, plan size, exit at the planned stop on a loss. The entries stay; only the behavior changes.

For Nora's 9 breaks: the 8 losers at the plan would have lost 8 × −102 = −816. The one winner, trade 18, at the plan's half size makes 20 × (116.00 − 110.00) − 2 = +118. Together −698, instead of −3,618. Add the plan trades: 1,428 − 698 = +730 for the month, instead of −2,190.

So the habit cost about 2,920 in one month. Note that trade 18 won at double size: a habit that wins sometimes is the hardest kind to drop, because the win is remembered and the eight losses are explained away.

The replay is a "what if", not a promise. It shows where the leak is, not what next month will bring.

An audit ends with one rule, not five. One rule can be followed and checked in next month's journal; five rules blur into "be better".

A good fix has three marks. It targets the moment of the leak: for Nora, the minutes right after a loss. It is checkable yes or no, like every line of a plan (A one-page trading plan). And it is hard to break in the heat of the moment: it removes a decision instead of relying on willpower.

"After any losing trade, no new trade for the rest of the day" has all three. "Try harder to stay calm" has none of them. A new entry rule or a new instrument misses the moment completely.

Marc, the experienced trader in this course, adds two habits that make such a rule stick: the stop goes in with the order and is never moved, and after a loss he closes the app and writes the journal line first. By the time it is written, the urge has passed.

A month of journal is a backtest of your own behavior, and it deserves the same closing question as any test (Backtest basics and traps): what could be wrong with this?

What Nora's March can show: the pattern is clear and repeated nine times out of nine, and its price is large (about 2,920). That is enough to act on: add one rule and watch it in next month's journal.

What it can't show: that the plan makes money. 31 plan trades is only just past the 30-trade minimum, it is one month of one kind of market, and it is practice money, where fills and nerves differ from real money. So the honest summary is "the leak is behavior; the plan's edge is not proven yet".

How it fits together: split the journal, price both piles, find the pattern, price the habit, add one checkable rule, state the limits. The leak was Nora herself, which is module 8's question: what if I am the weak link?