A trading journal helps you find and improve your trading style and strategies. There are also other advantages of having a journal.
What is a trading journal?
The trading journal works as a diary recording your activity in the financial markets. It can help you find your edge in trading and can carve your path towards achieving your objectives.
How does a trading journal work? Pretty straightforward: by showing you the things you are doing right and the aspects you need to improve upon. Additionally, journals can assist you in discovering much information about you as an investor.
Develop & improve your trading style by keeping a journal!
For people who have just started their financial markets journey, forging a trading style is one of the most important reasons to keep a forex trading journal. If you’ve read our article about how to create a robust trading plan, you probably know why it’s so important to come in with a plan. And creating a journal is an integral part of that plan.
Beginner traders don’t settle for a strategy right away. So, it could be a good idea to try out multiple ways of investing in the markets to see if they work. What better way to keep track of your performance than keeping everything on paper?
Trading journals usually include various different things. However, these are some of the most common:
• Why you entered a particular trade – you can add some side notes here, including what type of analysis you relied on
• The time & price you placed the trade
• The duration for which you kept the position open – position traders can keep a trade open for weeks; fast-action traders like scalpers can close a trade in minutes.
• Your exit price & the reason you exited the market – highly useful for analyzing your trading patterns
• A list with your successful and unsuccessful trades – right down to the last cent
Trading journals and emotions
You can also include mentions of your emotions in your trade journal when you were in the heat of the action. Do your trades always make you feel unease and uncomfortable? It might be because you don't have enough trust in your current trading system and strategies. Or perhaps you think you're taking too many risks and overuse leverage?
When it comes to trading, emotions play a significant role in how fruitful your trading turns out. It often comes down to how you manage stress and unpredictability. At the end of the day, you need to be in complete control of your feeling because you’re there to reach your financial objectives, right?
By writing everything down, you’ll get a chance to look at your trading activity from a whole new perspective. With all this newly discovered knowledge, you can plan your trades better and develop or adjust your style accordingly to each scenario you encounter.
Reviewing your trading journal – playing to your strengths, correcting your weaknesses
Supposing you start keeping a trading journal, then you need to go back to it at the end of each week or month to analyze the results. These observations can help you spot your strengths and observe the areas you still need to improve.
Be persistent in this routine, so that you record your every move in the markets! With the right amount of patience and sharpness, you can unearth new ways of identifying solutions to maximize your successful trades, while minimizing your unsuccessful ones.
Mistakes you need to watch out for when keeping a trading journal
One of the most common mistakes would be to become obsessed with your trading journal and consult it dozens of times a day. Avoid falling into this trap! You only need to update your record after you end your trading day. Doing it multiple times can only disrupt your focus from the key objective: becoming a more efficient trader.
Another frequent mistake that investors make is not being honest with themselves. The only way trading journal could benefit you is if you are realistic with what you have achieved, but also with your goals and objectives.
You must not overestimate your skills. On the other hand, be careful not to underestimate them either! You may be trading better than you think. By being honest with what you ask of yourself, you have a clearer picture of where you are succeeding and where you need to improve.
Finally, some traders tend to forget one crucial aspect: they need to evaluate how the markets behave. If you blindly follow your strategies without putting them into context, you risk things getting out of control. Some days, no matter how much you try, you won't be able to be successful. The faster this gets through your mind, the better.
Keeping a trading journal could prove quite an asset for the people new to trading. They can put theory into practice and see what works and what doesn’t. Also, skilled investors could potentially find trading journals highly useful. They allow them to continually come up with new, better ways of trading by analyzing their past activity.
Besides all that, trading journals might help you develop a sense of discipline. By tracking all emotions deriving from trading, you could learn how to contain them and trade more relaxed.
Sources: investopedia.com, thebalance.com
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