A well-kept trading journal is an essential tool for the modern trader to increase and develop their skills in the financial markets, while helping them account for their gains and losses.
But what is a trading journal? Why is it so important? And how to create one? In this article, we will answer these questions and more!
What is a trading journal and why is it important?
So what is a trading journal? A trading journal, or trading diary, is a place where traders keep a detailed account of all their trades, whether good or bad. But why would anyone do that?
A detailed trading journal can help you grow as a trader in several important ways.
1. Improve your trading strategies
First, keeping a trading journal helps you monitor and improve your trading strategy.
Being able to look back and identify where your trading strategy succeeded and where it failed will allow you to refine it and – hopefully, with hard work – make it a more successful system. efficient and more profitable.
It may even be that after evaluating the success of your trading strategy, you decide to try a whole new approach.
2. Develop your trading skills
Keeping a trading journal will not only help you improve your trading strategy, but also help you become a better and more consistent trader.
A trading journal allows you to see where you were right and, more importantly, where you were wrong. By identifying your successes and failures, you can work to improve your flaws and refine your strengths.
Many of us find it hard to admit that we were wrong or made a mistake. Although this is perfectly natural, it can hinder your development as a trader, as learning from mistakes is one of the most effective ways to improve any skill. By keeping a Forex trading journal in which you record everything, you force yourself to face the truth and not be tempted to ignore mistakes in favor of good ones.
How to Create a Trading Journal
The format of a trading journal differs from trader to trader, but the content it contains should be quite similar.
Some people will prefer to save their trading journal in a spreadsheet such as Excel, while others will prefer a simple note-taking application. How the information is recorded is not particularly important, what is important is the information itself and how it can help you become a better trader.
When it comes to creating the best trading journal, generally speaking, the more information you record in it, the better. At a minimum, your trading journal should include the following:
- Date and hour
- Trading Instrument – e.g. GBPUSD
- time frame
- Position size
- Long or short
- Entry point
- Stop-Loss and Target Levels
- exit point
- Result of the transaction (Profit/Loss)
These are the basic data and information that you should include in your trading journal. However, the best trading journals will go further, exploring the following points why you did what you did and paint a bigger picture of what was going on at the time.
What do we mean by painting the bigger picture? Write down your reasoning, what you expected and why. Write down everything you did in the lead up to the transaction and also write down your state of mind.
Was it a busy day? What did you do after entering the transaction? Did you watch him? Or did you turn on the TV and leave it for a few hours?
Why did you close the business? Were you nervous? Or was the market starting to turn around?
Asking and answering these types of additional questions will help you later analyze what you did right and wrong.
Example of a trading journal
Below is an example of a simple trading journal entry to show you how this information can be recorded:
Tips for creating the best trading journal
Before we wrap up, we’ve compiled a list of some additional tips to help you create the best trading journal possible.
- Be honest ! If you got distracted by something on TV and forgot to get out of a trade, write it down.
- Set aside time at the end of each week to review your trading journal and review the week’s activity.
- Take screenshots of your trading setups and save them to your trading journal; this will help you analyze your transactions when you view the log.
- Include relevant information and observations about the market you are trading. For example, if you are trading the EURUSD currency pair and later today the European Central Bank is due to make an announcement, write it down. You can keep track of scheduled events like this using our economic calendar.
- Take care to note your emotions and, again, be sure to be honest. Controlling your emotions is a key part of being a successful trader, and recording them in your trading journal can help you do just that.
A trading journal is an incredibly useful method for novice traders to hone their skills. By keeping a detailed trading journal, you can learn from your successes and failures and in doing so, improve your trading strategy and develop your skills.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer or a solicitation for any transaction in financial instruments. Please note that this trading analysis is not a reliable indicator of any current or future performance, as circumstances may change over time. Before making any investment decision, you should seek advice from independent financial advisers to ensure that you understand the risks.