The Importance Of Journaling
Most Forex traders only hear about the importance of journaling years after failure or even after a little bit of success, but you hear about it sometime in your journey in Forex trading.
Journaling is defined as writing or recording events that are happening, have happened or even the things you wish would happen. Usually, an internal thought process put down on paper or anywhere else you write.
In Forex trading the importance of journaling can range from many things such as determining your entry, exit, your risk, and the time you placed the trade. To be more thorough with this – it means documenting your entries on the pair, where you’ve placed your stop losses, take profits, how you plan to trail the stop, your risk management, and money management. The interesting thing about journaling is that so often traders do not cover other aspects of their journaling, such as a trade update and the final result once the trade has either brought a drawdown, some gains or if the trade was a breakeven trade.
Journaling helps when looking back, on the perspective you had of the market on a particular day and helps you understand why you saw the markets that way. Whether because your judgment was clouded by other events that occurred or you weren’t able to give the markets your full attention and so there were distractions that hurt your trading.
Journaling in the Forex market is meant to help you gather data, about the currency pair, how you manage risk and money, as well as your mental and emotional state when watching the market, going into the market, and exiting the market.
The process of journaling is useless if you don’t go back at least once a week, preferably on the weekend when the market is closed so your attention isn’t removed from the market, and reflect of the influences that may have affected the trading either positively or negatively. This will help you understand your trades better. The process could help you become more effective in the market and possibly help you understand when you shouldn’t be trading.
Journaling will help you determine where you are in the moment and the different situations that perhaps have affected your performance in the markets or certain attributes that have helped improved your clarity in the market. When you journal frequently, you can track your goal progress and where changes need to be made and where your strengths may lie to help realize the goals sooner than later.
Too many traders may say; ‘but journaling takes too much time’. Well my response to that is losing money in the Forex markets doesn’t take ‘too much time’ – in fact, it happens at a much quicker rate when you don’t take inventory of where you are psychologically, emotionally as well as why you’re trading that currency pair at that moment.
The beauty of journaling is also that you will either immediately be aware that you’re not trading your trading plan or when you refer back at the end of the week and ask yourself the crucial questions about whether or not you followed the plan to the tee and if your soldiers went to war with the edge you created for them.
It teaches you more about yourself and helps you become more self-aware and ensures that you focus on improving yourself internally (psychologically and emotionally) because if you aren’t sharp in those departments it will be close to impossible for your Sharpe ration to be greater than one. Now some of you may be asking what a Sharpe ratio has to do with this. Well simply everything. It measures your performance according to your risk variable.
Now, on the point that it helps you improve – you become your own mentor and soon you’re able to spot your own mistakes if you remain devoted to getting better and improving your skills in and out of the Forex market. This Forex trading journal could be your guide on what to do and when to do it. As important as that is, it can also tell you WHAT NOT TO DO!
This is probably one of the easiest ways for a trader to start being real with themselves if they know that 1. They aren’t being honest with themselves, 2. Doing one thing and expecting another and 3. If they are putting in the hours required to succeed.
Your discipline in journaling will be a good indication of the success you will either experience or not experience in your Forex journey.
What should be in your Forex trading journal?
So lastly I will give you a list of things I believe need to be in your journal;
1. How you’re feeling before you look at the charts.
2. What you see in the markets and in the pairs you have entered, as well as your reasons for entry.
3. How you’ve been managing the trade.
4. Asking yourself questions like:
- Would you take that trade again? Why? Or why not?
- Were there things you missed? Information you didn’t pay attention to?
- Was your emotional and mental state sharp when you entered the markets?
You can have all this information done in 10 minutes tops for each pair you enter, whether you make a spreadsheet on Excel and enter the information there or elsewhere. Another thing you could use to track your trading, would be a myfxbook account or psyQuation account and see the grown or drawdown of your account, as well as the amounts, and from there take inventory of whether you’re progressing or digressing.
Happy Trading traders!
Track your emotions and psychology as you track you P/L!!