A trading journal or how to improve your trading

Every bodybuilder has a diary to monitor diet, weight and straight. Every scientist uses a journal to monitor the results of the experiments. Every chess player has a journal for writing down his moves. As well a trading journal is essential for financial market trading.

The majority of traders hasn’t got a trading journal or they even don’t know what it is. But why? Perhaps, they don't know how to do it and what to write down there, or they just can't understand how important it is.

Almost all the brokers can provide their clients with information about each trade, margin amount, profit or loss. Nevertheless, a trading journal can help traders to increase the chances of success. Though the numerous traders don’t keep a journal or can't use it properly and consistently.

Among the main advantages of keeping a trading journal is the opportunity to determine the efficiency, analyse trading process and monitor your psychological responses to profit or loss. And in addition, you can see which of the trading instruments used brought you the best profit and during which period your trading was the most effective.

In this article we’ll try to go back to the beginning and then take you through this step by step to help you to make a journal to be closer to lucrative trading.

A trading journal

A trading journal contains the records of all trader’s activities. It usually includes the information which is not included in account statements such as trader’s thoughts about his trades, current market conditions, trader’s emotions connected with trade. The main purpose of a trading journal is keeping accurate records of trade intensity, trader’s commitment to his plan and psychological responses to his trades.

Furthermore, some examples of different trading journals show us the diversity and the uniqueness of different traders’ records. Keeping trade records can help traders to deal with their own trading and to understand their own trading psychology. Traders can find out their own strengths and weaknesses because of keeping journal. Consequently, it will be easier to avoid impulsive actions in future. Moreover, trading gambling or incorrect analysis of market conditions become evident.

Keeping trading journal will be the most effective, if a trader practice strong discipline and follow the plan strictly. In doing so, a trader finds out the lack of discipline and, therefore, it is possible to work on it. Journals are used by many successful traders who want to be objective in trading. The more serious people are about their trading, the more chances they have to take their trading as business. All leading companies keep activity records, and trading is not the exception. However, the majority of inexperienced traders underestimate the importance of trading journals, experienced traders understand how it’s essential to keep precise records not only of trading activity, but also of emotions and thought.

Why do we need it?

Your trading journal is some kind of a diary to record your trading. And this often could be crucial and turn you into a prosperous trader. Trading journal will focus you on your strong and weak points. An ideal trader doesn’t exist. So you should always upgrade your trading. Work with your weaknesses and don’t let them drag down your trading account.

If you test new trading strategies, you should constantly write down your results to keep the statistics. You shouldn’t keep changing strategies because of any failure. Thanks to trading journal you will be able to analyse the statistics observing advantages and disadvantages of a strategy.

If you want to be a successful trader, you should be consistent in your actions. And if you keep a journal, you can review your previous trades and see loss-making strategies and setups to stop using them. As a consequence, you will be able to focus on the profitable strategies and setups. Accordingly, you will be able to gradually aquire your advantage in the market.

Core elements of a trading journal

The elements of a trading journal may have as many differences as there’re traders in the market, but as a general rule they all contain the elements which characterize the core elements of a trade.

The time of a trade is the information which will help a trader to learn when exactly a trade was made. This includes market conditions and the reason of initiating a trade.

The price of a trade shows the level of a trade initiating by a trader. This information may also include stop-loss and take-profit.

The worth of a trade is its value in comparison to the account balance. This information is extremely important for capital managing.

The results of trading is achieving the expected progress or the other way around.

Some elements can make your journal much more effective. This may include the comments when you start or finish your trade, the level you decided to start a trade, and also the reason of this level choice.

As a rule, a trading journal is used as an instrument to help traders stick to their trading plan. It shows traders which moves worked and which were failed.

Concentration on your own thoughts connecting with trading can illustrate when and why the mistakes were made and instruct how to avoid the same mistakes in future trades.

How to make a trading journal? 

The majority of traders keep their trading journal to write down entry points, profit and losses. But sometimes it’s not enough because it’s crucial to take all factors into account, including your emotions, your mood and general trading analysis. So your journal should be divided into three parts – before, at the trading time and after it. Only then you get a sense of all the factors influencing your trading.

You should analyse the market before making every trade and point out setups you need. It can help you to avoid mistakes and be more attentive.

In accordance to your trading approach, you can review your trading before the market opens or on weekends.

Your trading should conform to your trading plan. If you use a setup which is not in your plan, it means you don’t trade, it means you just gamble.

For more convenient using of trading journal it’s better to use charts to account briefly your vision for market and trading setups.

Make a screenshot and write down all the information connected with your trade after trading. It includes:

  • time
  • timeframe
  • trading pattern
  • currency pair
  • lot size
  • trade direction (long or short)
  • starting price
  • final price
  • stop-loss place
  • profit or loss
  • risk locations
  • risk/reward ratio
  • trade exit

It’s also a good idea to save the screenshots of your trade:

  • timeframe screenshot. It helps to see the market from the outside.
  • current timeframe screenshot to see an entry point, trading setup and stop-loss.
  • exit screenshot to point out the received profit or loss.

How to improve your trading using a trading journal?

If you constantly keep a trading journal, you’ll have certain statistics. The analysis of these statistics is a key to find patterns in your trading. You will able to find your loss-making trading setups and stop using them. These simple steps can mitigate losses immediately. Furthermore, you will be able to find out the lucrative trading setups to concentrate on them in future trading. You can analyse the loss-making trades and try to streamline them. Perhaps it will be possible to stop trading earlier or, maybe, use another strategy to filter this kind of trades, or even not to trade at certain time or certain days, or not trade at a specific time of the day or day of the week when you fail most often.

After that you analyse your profitable trades and try to improve them even more. For example, you can enter the trade piece by piece and close only part of the position first. Or use the trailing stop technique for the patterns that bring you the most profit. The analysis of your trade journal perhaps is going to be one of the best ways to achieve success. Plus, if you take a look at your trading actions from a retrospective perspective, you will generally get a much clearer and better understanding of the things you can improve in your trading behavior.

The software is a tool for keeping a trading journal

Online trading journal software is an essential tool that traders can use to analyse their trading efficiency. The first type of software being used by many traders are spreadsheet programs such as Microsoft Excel or Numbers.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading and investing in financial markets involve risks, and individuals should seek professional advice or conduct thorough research before making any investment decisions.

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