Trading Journal - Explanation And Tips
You may think that keeping a journal is for teenagers, what if I told you that it can make you a better trader? That means greater profitability! Now, that would make anyone sit up and take notice.
Trading journals are important in highlighting the improvements required in your trading as well as what you are succeeding at. How does it help? How can you implement it? All the relevant questions about journaling will be addressed in this order:
- What is a trading journal?
- Why should you use a trading journal?
- How can you implement it in your trading?
What is a trading journal?
A trading journal is any tool used by a trader to record and monitor their trading activities, with the purpose of improving execution and performance.
Most traders miss a trick with trading journals, only following this process for the analysis of trades, the true power lies in using this tool to observe your psychology.
By considering both sides of the coin, trading journals can allow you to monitor the performance of a system as well as how well you execute it, bringing us to the next section…
Why should you use a trading journal?
I should start by telling you that all successful traders keep records of their trading, in whatever form, and review their performance. Emulating those who have reached the top in any field is the best way to supercharge your performance, that should be enough motivation to have a process of keeping track, along with the following.
1. System improvement
Journaling allows you to analyze the performance of your system and by extension the improvements that can be made. You may notice better ways to time your entries, size positions, control risk, the possibilities are endless. Small changes can significantly improve the odds and your long-term profitability.
2. Improvement in execution
Having a system with a positive expectancy is one thing but what separates the great traders from losing traders is the ability to execute a system objectively. What does that mean? It means following the rules that you establish for entry, exits, risk management, or any other considerations.
By keeping track of your trading, you will be able to notice the flaws in your execution and find ways to fix them. Over time you will become better at following the rules to a tee.
Managing one’s psychology in trading is the most difficult skill to master. Trading journaling highlights any flaws you have in this area and allows you to make changes that benefit your trading.
4. Emotional awareness
Forex trading causes emotional rollercoasters, to become a successful trader you must control the extent that the market affects your emotions and make sure that they do not cloud your objectivity.
The first step in this process is to become aware of your emotions, then discover what events trigger certain feelings and the reactions that you take as a result. From your findings, you can become the objective trader that everyone desires to be.
5. Enforces discipline through accountability
All of these points are interlinked with one another. Through the process of record-keeping, you are forced to take accountability for your actions which makes it more likely that you will follow your rules going forward. Without journaling, no process forces you to check that everything is being implemented accordingly and self- discipline wavers without accountability.
6. Accessing the impact of market conditions
Market conditions influence the performance of all strategies, analyzing system performance during certain periods reveals which conditions suit the approach and you can adjust accordingly.
7. Shows which strategies work
A new trader may be trying to find a strategy with a positive expectancy, consequently, more than one strategy could be traded at once. More than 2 or 3 is not recommended because it harms execution, but keeping a journal helps to single out strategies with a positive expectancy vs those that do not. Otherwise, all approaches are jumbled into a net result.
8. Recognize patterns
Essentially this entire process is about finding patterns in your trading and how results are influenced by these patterns, most of the time you will find these in your winning and losing streaks. After that, your job is to eradicate the patterns associated with losing streaks and consistently implement the those you find during winning streaks.
How can you implement it in your trading?
I will break this into two parts, although you can combine both if you prefer, the first is keeping a pure trade related journal and the second is keeping a psychological journal.
Trade journal requirements
- Currency pair traded.
- Position type (buy or sell).
- Size (volume).
- Entry time.
- Entry price.
- Exit time.
- Exit price.
- Stop loss.
- Take profit.
- Trade management.
- Net result.
Physiological journal requirements
- Thoughts on the trade e.g. were you confident in execution or did you doubt?
- Feelings towards the trade e.g. did a small move against you make you fearful?
- Objective evaluation of execution e.g. did you enter on a weak signal because you were too excited to place a trade?
- Objective evaluation of position management e.g. did you move your stop to break even too quickly?
- Situational and environmental factors while trading e.g. was your child screaming at you to make food when you placed the trade or maybe you are in college and a massive party with loud music was happening outside your dorm room?
- Results of psychological factors- This refers to any actions you took in your trading due to the previous factors e.g. were you not focused because it was too noisy and did not calculate position size correctly or when you felt fearful did you close the position too early?
The above psychological factors can also be put into a table, such as the trade journal example, to be reviewed.
- The trade and psychological factors must be journaled before, during, and after the trade is complete to get a full picture of the process.
- Screenshots, or even recordings, should be taken during important points. Through this, you will have a clear understanding of the analysis you were looking at and the decisions that you made as a consequence.
- Review, review, review. Journaling is a waste of time if you do not go back to analyze the trades and yourself, the entire point of this process is to recognize potential improvements and implement them. How often you review is dependent on the type of trader you are and it will take practice to determine what is right for you.
Yes, journaling takes time and effort, but that is what it takes to become successful at anything. I hope you have been convinced to start journaling, and if you do then use some of the mentioned points to improve even further.
Trading is about you and your strategy; journaling helps take both to the next level.
Now go ahead
Improve the strategy