Trading is a constant sum of decisions you need to make. Understanding what ultimately ended into a win or a fail will help you identify your strengths and your weak points. Keeping a trading journal is exactly what you need to get to the next level and evolve. Find out what exactly a trading journal is and how important it is to use one!
What is a trading journal?
A trading journal encompasses all of your past trades and all the steps you took to execute them. Its format depends on your trading style and personal preferences. For example, if you’re old-school, you can buy a notebook and scribble the outcome of every trade, what strategy you applied, your entry/exit points, and any other helpful and relevant notes. On the other hand, if you’re more technical, you can keep an organized Excel file; and if visuals are your go-to stimulators, you can opt for a Google Doc, where you can add print-screens and write side-notes.
How to create a trading journal
You can design your trading journal in any way you want and feel comfortable with, but there are a few main aspects that you must incorporate. Think of the following features as the skeleton of your trading journal and feel free to add anything else that you consider helpful:
1. Collect data
You’re about to trade a financial instrument: what is the market saying? What is the Economic Calendar saying? Write down the main points about the news from that moment, the worldwide economic & political events, a few notes about the support and resistance levels, or other indicators you’re using. This step will help you see how the financial instrument reacts in certain market conditions and it is also a great way to store valuable data about the market.
2. Write down how you feel and what you expect
Write down how you feel in that particular moment/day and which are your thoughts in regards to the market conditions. What do you think will happen to your trade based on the data you collected? How much money do you plan to invest and what is the trading opportunity you are expecting?
3. Create notes about your trade initiation
Write text notes about the trading strategy you planned to approach, the orders you set (stop –loss, take profit etc.), the reasons that made you open an entry position and the circumstances in which you made it. A print-screen of the chart at the entry time would be ideal. Your emotions are always part of the game, so make sure to observe and monitor them during each step.
4. Create notes about the trade exit
Evaluate the outcome of your trade. When did you close the trade and why? Did you deviate from your initial plan? Was it the result you were aiming for? Notice the efficiency of the strategy you approached and if it matches your plan and the financial instrument you’re trading. If you are a day-trader and want to start all over again, apply the same steps for each trade.
A trading journal is basically an open invitation to introspection. You need to be completely honest with yourself and identify the hot key errors, but also your strong points. Maybe you’re not identifying the trends correctly, maybe you’re too emotional, or you’re using the wrong strategy. Having a written and visual representation of your mistakes will help you identify them and improve your system. The online broker you trade with is also important, because if its services are good, they can ease your entire trading experience. We encourage you to try TradeFW.com, a professional online broker that provides prime quality services and a modern environment where you can get the best out of any strategy you choose.
The importance of keeping a trading journal
Keeping track of your trading activity will help you get better, and better, and more experienced! All the information you need to improve will be at your fingertips. A trading journal will nourish your self-discipline, will help you see the weak points and reinforce them; and ultimately, will help you understand how certain news & events, and economic indicators impact your trade. It will also force you to improve your trading technique, manage your capital better, and change your ineffective habits. So, yes, a trading journal has the capacity to make you grow as an investor.
The bottom line
Entering and exiting a trading position can sometimes take up to a few minutes, but the result will pay off only if there are hundreds of hours of hard work behind them. Apart from hard work, a trading journal is one of the other ‘secret’ ingredients of investment opportunities. Although every trader can create one according to their needs and style, there are some essential guidelines that need to be taken into consideration. All in all, the importance of keeping a trading journal is undeniable and can be a real game-changer.