TRADING JOURNALS: WHAT ARE THEY?
A trading journal is a log in which you may record your deals. Traders keep a trading journal to reflect on prior deals and analyze themselves; you should, too! Journals help you determine where you can improve your trading. They are a practical method of maintaining records.
WHY ARE TRADING JOURNALS NECESSARY?
The primary justifications for maintaining a trading journal include the following:
- They assist you in identifying your style’s strengths and weaknesses.
- Trading Journals may improve the consistency of your trading.
- The journal might help you stay on track.
- The journal can help you decide which trading strategy will work best.
Keeping a trading journal is a simple yet powerful technique to enhance a trading strategy. A trading plan is a set of principles you adhere to, including trader psychology, risk management, and strategy.
CREATING A TRADING JOURNAL
Creating a trading notebook is easy; you may customize it to fit your unique trading objectives and style. A general outline of what to do is provided below, followed by further details:
- A spreadsheet or a book is your choice. We advise using a spreadsheet.
- Decide what details you want to write down. (Trade date, the underlying asset, size of the stake, etc.)
- Record your transactions as soon as you have set your stop losses and take gains.
- After a certain amount of time (daily, monthly, or weekly), assemble the data and consider the transactions.
Step 1: Select a book or a spreadsheet.
We advise utilizing a spreadsheet due to its integrated analytical features. These might assist you in thinking back on the transactions as we discuss in step 4.
Step 2: Select the data to be recorded.
A trade notebook will often follow the following structure:
| CURRENCY PAIR | SIZE | LONG/SHORT | DATE | CONVICTION | STRATEGY USED | POINTS | SUCCESSFUL OR NOT? |
|---|---|---|---|---|---|---|---|
| USD/JPY | 1 lot | Long | 30 Jan 19 | High | Fundamentals | 100 | Successful |
A straightforward trade journal would follow the typical format. It can aid in your reflection on your transactions, but with a few more criteria, we can improve the diary and make it far more informative.
Consider adding the following valuable details:
- Reason for trade: The motive may be technical, fundamental, or a mix of the two analyses. Once you’ve completed several transactions, you may evaluate this data to see if your trading goals yield noticeable outcomes. This also helps you decide whether the technical or fundamental analysis is the right approach.
- Conviction: Conviction is your attitude toward the industry. We may classify the conviction as “strong” if you base your trade on a technical pattern and the pattern “checks off” several requirements. However, depending on the trade’s variables, the conviction may be “medium” or “low” if the pattern or fundamental narrative isn’t apparent. By recording your conviction, you may determine how many profitable deals you have made with each level of conviction. This helps you decide whether you should only trade when you are confident.
- Other: You are free to write anything you believe is appropriate in your diary. Some traders include a factor for their emotional state during trade placement. Write down anything you think may be helpful.
Step 3: Record the deals as soon as they occur.
Make it a practice to write down the specifics of each deal as soon as possible after it occurs while the information is still fresh. You won’t have to consider why you accepted the transaction if you do it this way. Make careful to only do this after setting your take-profit and stop-loss levels.
Step 4: Gather the data and analyze the transactions
You may assemble the data in your trading diary after a specific time, ideally a few months, so you have adequate data.
Add up the number of profitable transactions you made while your conviction was high, medium, and low if you have conviction criteria in your diary. Once you have this information, you may decide whether or not it is worthwhile to trade just when your conviction is firm.
For instance, if you had a high confidence level throughout 10 transactions and eight were profitable (take-profit targets were reached), your past trades would indicate an 80% chance of success. If just two of your ten transactions were profitable, that represents a 20% chance of success if your confidence was low on the other ten. Thus, trading is only worthwhile when your conviction is great.
This may be done using a variety of criteria so that you can evaluate your trade and make improvements.
TEMPLATE FOR TRADING JOURNAL
Here is an example of a template for a trading journal that uses this kind of trading strategy as criteria.
Following our discussion of the many criteria, you may use in your journal, the table above shows how you might arrange all of this data in a spreadsheet. The form above may be downloaded for individual use on page five of our free guide on gaining trading confidence.
A Summary of Trading Journals
One of the first things traders should do when starting to trade starts a trading log. A notebook is crucial for evaluating various trading plans and discovering the most effective for specific traders.
Keeping a trading record is crucial to determine if a current trading strategy is effective. To sum it up:
- You may record your trading activities in trade journals.
- They aid traders in testing various trading techniques and tactics.
- Trading journals may also identify a trading style’s advantages and disadvantages.