A trading journal is a log that you can use to record your trades. Traders use a trading journal to reflect upon previous trades so that they may evaluate themselves, and you should too! You can use journals to evaluate where you can improve your trading. They are a useful form of record-keeping.
The Main Reasons To Keep A Trading Journal Include:
They help you identify weak points and strong points in your style.
Journals could increase trading consistency.
The journal could keep you accountable.
The journal can help you choose your best trading strategy.
Keeping a journal is a simple yet extremely effective way to improve a trading plan. A trading plan is a set of rules and guidelines you will follow that includes strategy, risk management, and trader psychology.
How To Create A Trading Journal:
Creating a trading journal is simple and you can tailor one to your specific trading goals and style. The following steps are a basic guide, which is explained in more depth below:
Choose between a book or a spreadsheet. We recommend using a spreadsheet.
Identify what information you would like to record. (Date of trade, the underlying asset, position size etc.)
Record your trades directly after you have finished placing your stop losses and take profits.
After a designated period (daily/monthly/weekly) compile the data and reflect upon the trades.
Step 1: Choose a book or spreadsheet
We recommend using a spreadsheet because of the built-in analytical functions.
These can help you reflect upon the trades as we explain in step 4.
Step 2: Identify the information to record
The standard format of a trading journal will include these main criteria:
2 June 2021
The standard format is an example of a simple trade journal. It can help you reflect on your trades, but with a few extra criteria we can enhance the journal so that it provides much more useful information.
Reason For Trade:
The reason could be due to technical or fundamental analysis or a combination of both. Once you have executed several trades you can reflect on this information to see if your reasons for trading are bearing tangible results. This could also help you determine which strategy works better for you – technical analysis or fundamental analysis.
Conviction is how you feel about the trade. If you are making the trade based on a technical pattern and if the pattern ‘checks off’ several guidelines, then we can list the conviction as ‘high’. However, if the pattern or fundamental story isn’t really clean, then the conviction may be ‘medium’ or ‘low’ depending on the factors basing the trade. By writing down your conviction, you can calculate the number of successful trades you have had with each rank of conviction. This could help you determine whether you should only trade when you are very convinced or not.
Other: You can put whatever you feel is necessary to record in your journal. Some traders add a criterion for how they feel emotionally when placing the trade. Anything you feel will help you, write it down.
Step 3: Record The Trades Directly After The Trade
Get into the habit of recording the details of the trade directly after the trade, while it is still fresh. This way you won’t have to remember what your reasons were for taking the trade. Make sure to do this only after placing your stop-loss and take-profit.
Step 4: Compile the data and reflect upon the trades
After a certain amount of time, preferably a few months so you have enough data, you can compile the data in your trade journal.
If you have a conviction criterion in your journal, tally up the number of successful trades made when your conviction was high, medium, and low. Once you have this data you can decide whether it is worth trading only when your conviction is high or not.
For example, if you maintained a high conviction in 10 trades and eight of them were successful trades (Take-profits were hit) that’s an 80% probability of success on your historical trades. If your conviction was low on 10 trades and only two were successful trades that’s a 20% probability of success. Therefore, you would conclude that it is only worth trading when your conviction is high.
You can do this with all the different types of criteria so that you can reflect on your trading and improve.
Having a trading journal should be one of the first steps traders implement when learning to trade. A journal is of utmost importance to testing different strategies and finding which trading plans work for individual traders.
A trading journal is essential in testing whether a currency trading strategy is working.
Trading journals are there to log your trading activity. They help traders test different trading plans and strategies. Trading journals can also help traders pinpoint strengths and weaknesses in a trading style.
To add to your knowledge see the Number One Mistake Traders Make where we analyzed thousands of live trades and came to a striking conclusion.
You must have a trading journal because it helps you find your edge, identify your strength & weakness, and improve your trading results.
A trading journal can be split into 3 parts: before, during, and after the trade.
Before the trade: This is where you analyze the markets for potential trading setups so you don’t miss trading opportunities.
During and after the trade: This is where you record the relevant data so you can review them and find ways to improve on them.
Now, if you can do this consistently, your trading results will get better. And before you know it, you are already a consistently profitable trader.