A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline. This might sound simple or easy but we assure you that getting started can be very difficult. Many forex traders give up after a while and rely on the logs that the forex broker provides. The logs or transaction history from your forex broker gives information that is, at best, marginally useful as it doesn’t tell you much of WHY you entered and exited the trade. That information provides NO help to your next trade. A trading journal isn’t just about writing in the prices of your entry and exit and the time you executed the trade. The trading journal is also about refining your methods and mastering your psychology. To be even more specific, it is about your emotional psychology before, during, and after the trade.
But your gut feeling tells you that the trade is NOT going to work… So you remind yourself, “I don’t think this trade is going to work. But I have to follow my trading plan so I’ll take it.” During the middle of your trade, the price comes 3 pips away from your stop loss and you’re thinking, “OMG. This trade isn’t looking so good. I knew it! Why didn’t I listen to myself? I’m such an idiot! I’m about to lose here! I’ll just exit now.” You then decide to close your trade. A few moments later the price shoots to your original profit target. Had you stayed in the trade you would have made a decent profit. This is why you should write a trading journal. This is a classic case that probably happens to too many traders. We fail to stay in the trade, we fail to trade the plan, and most importantly, we fail to distance our emotions from our trading! If you keep trading like that and you don’t keep a trading journal, the balance on your trading account will become a big fat ZERO before you realize what you’re doing wrong.
Besides helping you in your journey to baller status, there are other personal benefits to journaling…
- Defining yourself and your situation in life.
- Keeping progress of the goals you’ve set in your Trading Plan.
- Clarifying your weaknesses and strengths in your ability to perform and handle the pressure.
- Providing a way to self-coach and improve on your own.
- Forex Trading Journal Acts As A Coach.
Keeping a journal may seem boring and time-consuming, but a forex trader can often learn more from reviewing their trades, than from reading a book or even attending a seminar. Over time, your journal will grow with you and, if you keep detailed records of everything about your forex trading (from psychological issues, the market environment, system tweaks, etc.), it will help you recognize important lessons.
Things You Must Have In Your Trading Journal
You record everything you feel and do before the trade, during the trade, and after the trade has been completed. Trading is a performance skill, regardless of your trading style or method. Your outcome is determined by how well you analyze the market environment, your ability to create a plan or trading method, how well you execute that plan, and luck. Many variables lead to success, so you have to write down everything to determine your weak and strong points.
For traders, that means recording:
- Who you are and your motivations for forex trading. To find the right trading method for you, you have to know who you are, your lifestyle considerations, and why you do the things you do.
- Market views and philosophy. This is how you understand and frame the markets, and how you make the decisions to act and manage the risk to your account.
- Observations of the market. Each day is different in the market, but that doesn’t mean there are certain “tendencies” or “behaviors” that you can take advantage of. With careful and consistent observation, you can find these “tendencies” and create or adjust your strategies to them. Also, if the environment changes, you’ll be on top of the situation and change with it!
- Trading mistakes and missed opportunities. Mistakes and missed opportunities are just as detrimental to your success as the market going against your trade. Closing trades too early, not taking legit setups, entering the wrong entry levels or position sizes, etc. should be recorded in your journal so that you avoid the same mistakes in the future.
- Performance statistics. Many aspects of your forex trading performance can be quantified into hard data. This gives you a realistic, no BS picture of how you’re doing. Like Shakira’s hips, the numbers don’t lie. And sometimes a shot of reality can give you the kick in the butt you need to kick up your game!
The Bare Minimum: 5 Things You Must Keep In Your Trading Journal
All right, here are our 5 “must-have” elements of a forex trading journal:
- Potential trading area.
- Entry trigger.
- Position size.
- Trade management rules.
- Trade retrospective