Trading Journal: Improve your Forex Trading Career

What is a Trading Journal?

A trading journal is a trade log that can be used to record trades.

This is used by traders to reflect on the previous trades in order to evaluate themselves.

You can use the journal as a tool to evaluate objectively and to improve on your trading.

Keeping a trade journal is an important task in any goal-oriented endeavor or performance.

The aim here is to be able to measure, track and focus on improving your performance. Just like in athletics, keeping track helps you become better in the trading world.

Any disciplined trader is a profitable trader and keeping a trading journal is the first step towards building your discipline.

Any serious trader that wishes to make money trading should use journals as a tool to improve on their trading.

For a successful trading career, one has to consider three elements:

  1. Have and execute a good trading plan
  2. Have a good trading system as part of the plan
  3. Regularly review and improve your trading performance and plans

These are the crucial elements that every trading journal should focus on.

trade log

What are the Objectives of this Trade Journal?

Its objective is to monitor both the performance of the system, not forgetting your ability to consistently execute it.

Less frequently, poor trading systems are the cause of poor performance in trading compared to the trader’s inability to properly follow the rules of the trading system.

This is where your trading journal comes in, as it ensures that you follow the trading plan.

They are as good as what’s written in them, and when one fails to track trades accurately, it becomes difficult to judge trading performance.

Anything written in the trading journal should be honest and thorough, and nothing should be left to chance.

Don’t short-change yourself by failing to record entries or putting incomplete entries. All these serve to equip and build discipline in you while trading.

The trading journal gives you the ability to reflect on your entries after a period of trading, say a month or a week, and you will not only learn about yourself but also your trading psychology.

You’ll be in a position to see what you are good at, hence the best way for you to trade.

This is among the things that you won’t be taught anywhere, but you will have to learn all by yourself.

Reasons Why a Trading Journal is Useful

  • Helps in identifying the weak and strong points in your style of trade.
  • Boosts your consistency in trading.
  • Helps you in enhancing accountability.
  • It comes in handy when selecting your trading strategy.

Remember; keeping a journal is a simple yet effective way to improve a trading plan.

These are a set of rules and guidelines that you can follow.

They include strategies, risk management, and trader philosophy.

 

How do you Create a Trading Journal?

Creating a trading log is a simple procedure that can be tailored as per your specific trading goals.

The steps involved can be summarized into 4 simple steps:

  1. Depending on what you prefer, choose between a book or spreadsheets, though spreadsheets are recommended as they are easy to handle.
  2. Identify the information you would like to record, i.e. date of trade, the underlying asset, or position size e.t.c.
  3. Directly record your trades upon completion; placing stop losses and take profits.
  4. After a period of time, compile all the recorded data and reflect upon the trades.

1. Choosing between a book and spreadsheets

In as much as you have the liberty to use any of the two methods, the use of spreadsheets is highly recommended. This owes to the built-in analytical functions which are in spreadsheets. It’s also easier to compile results in spreadsheets.

2. Identifying the information to record

A trading journal has a standard format that comprises the following sections:

Currency pair, size, long/short, conviction, the strategy used, points obtained and an indication as to whether successful or not.

For example:

Currency Pair Size Long/short Date Conviction Strategy Used Points Successful or not?
AUD/JPY 2 lots Short 20 May 19 High Price Action 112 Successful

 

You can also go a step further and add more information into the trading journal to make it even more useful.

The information to be added might include:

Reason for the trade

Reasons vary and could range from technical to fundamental analysis or even a combination of both. Once you have conducted several trades, you can reflect on this information to see whether your reasons for trading have tangible results. This is one of the strategies that will help you determine what works for you.

Conviction

This refers to your feeling towards the trade.

For instance, let’s say you are making the trade relying on a technical pattern. If the pattern conforms to various guidelines, the conviction can be listed as ‘high’.

On the other hand, if the fundamental story or pattern isn’t that clean, then the conviction may be ‘low’ or ‘medium’ depending on the factors you are basing the trade on.

Therefore, by writing down your conviction, you can calculate the number of successful trades you have had with each conviction rank, and this will guide you as to whether you should only trade when convinced or not.

Other

In case you feel the urge to add any additional information that you feel may help you in your trade journal, then you are at liberty to do it.

3.Directly record the trades after every trade execution

Recording the details of every trade when still fresh ensures that no information is left out or omitted. By so doing, you won’t have to remember what your reasons for taking the trade were.

4.Compile the data and reflect upon the trades.

Just as mentioned earlier, this can be done periodically, after you have collected enough data.

If for instance, you have a conviction criterion in your journal, tally up the amount of all the successful trades done when your conviction was high, at medium and when it was low.

With this data at hand, you can now come to a decision as to whether or not it’s worth trading when your conviction is high or otherwise.

Let us look at a case example here;

Let’s say you maintained a high conviction of maybe 15 trades, and 13 of them being successful. That will mean 80% probability of success on your historical trades. Had your conviction been low on 15 trades, with only 3 being successful, that brings the probability for success down to 20%. One would then conclude that it’d be worth it trading when your conviction is high.

You can conduct this assessment with different criteria in your trade journal so that you can come up with the best trading strategy for yourself.

How to Maintain your Journal

Here are some of the tips to help you get the best out of your trading journal:

  1. Always be true to yourself

When maintaining your journal, remember that your trading journal must be an honest account of your trading activities, motivations, methods, not forgetting your moods and feelings.

This is more important than you may think, and here’s why: Your emotions and psychology can have a massive impact on your trading outcome.

You are likely to lose your money when you trade with anger, out of boredom, or when you feel that the market owes you a return.

Hence, it’s important to note down every feeling or emotion you experience.

  1. Include links and images in our trading journal.

If you come across an interesting article, a research piece, or a good quote that interested you, record it.

You may also come across an image of a chart that interests you, go ahead and save it. Include any descriptive notes if need be.

  1. At the end of the trading period (day, week or month) summarize how you feel.

How did the trading period work for you?

Were you pleased with your performance?

Were you annoyed, or did you miss an opportunity?

Did the idea of using a stop loss instead of letting a losing trade to proceed delight you?

Highlight all the highs and the lows of that trading period, be it a day, week or a month.

  1. Always back up your data

Be it on cloud or a portable media, make sure that whatever you’ve saved on your trading journal is securely backed up, in case you lose your data.

To restrict access to the journal, you can protect it with a password.

  1. Regularly update your journal

Note down the details of the relevant trade and the motivations before pushing the buttons and updating the details of the outcome once you have closed that particular trade, along with your thoughts, observations and feelings at that time.

Do not miss out on adding any relevant information on your journal.

  1. Regularly review your journal

One of the main reasons why you keep a trading journal is to create a trading history, together with observations and notes that you can look back on and compare with your original trading plan.

You, therefore, have to revise your journal to best suit your needs.

You have to avoid being biased with what you record as this won’t help you much.

Do not judge something based on its result. For instance, if you made four or five trades that did not go according to your plan, but made some good money, that should not be a reason to change your plan, especially without considering why and how you made those trades and why they went your way.

Using a trading journal is a good way to help you control your trading.

It is such an essential tool in being able to add an additional deduction to your trading history and is a must-have for every trader.

Read: Trading Tricks: 14 Practical Trading Tips to Dominate the Market

trading journal

Conclusion to Maintaining a Helpful Trading Journal

In order to keep a helpful trading journal, always remember the following:

  • Pay close attention to your emotions and write them down.
  • Be honest when handling a journal. Always record everything and don’t leave anything out, no matter how insignificant it may seem.
  • Always make sure that the journal includes observations about you and your trades not forgetting the forex market.
  • A trading journal is a good learning tool and a great mechanism for training yourself to see the setups you fancy to be trading.
  • After a few months, the results will start to reveal, and you will see the patterns emerging in real time.

 

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