Why is it so important to keep a trading journal? To what advantage will be keeping a journal be?
You would agree that trading is one of the psychologically demanding activities to be involved in. Learning to maintain and improve your psychology is therefore very important. However, you need to keep a good record of your journey to measure how far you’ve come.
Most businesses have tenable records that can be easily referred to when the business runs into trouble; forex trading is no exception.
Running a successful trading career also means you should keep up with your trades. There is no better way to approach it than properly journaling all your trades. Although it isn’t the easiest thing to do, it is the best way to achieve substantial growth.
There are a few strategies that help prone and enhance your ability to trade the forex market rightly. Having a trading journal is fundamental to all of those strategies1.
If done right, keeping a trading journal would help increase your profitability in the forex market. Essentially, it gives you hands-on backtrack of how you have psychologically reacted to the market.
The market volatility tide is continuously uproaring. While you might be certain about some of your market technical analysis, you can emotionally jinx a trade.
It is a norm for the trader to battle with emotion while executing a trade. However, it’s suicidal not to develop your emotions and psychology about the forex market.
Trading at its best is a psychological activity; it wouldn’t help if you don’t know how your psychology has progressed or regressed.
If this is the first time you came across a topic like this, you miss the fun in trading. So What is a trading journal? If you own any business, you understand why you should keep records of your inflow and outflow of cash.
It’s the same thing with forex. A trading journal is a detailed record of all your trades and entered positions.
Now that you know what a trading journal is, you also know the right information to incorporate into your journal.
There are many painted scenarios of why having a trading journal is essential to your trading career. However, without the right information in your trading journal, you would be unable to utilize it properly.
This article introduces you to five significant pieces of information that you should keep in your trading journal.
Without further ado, this is the essential information you should include in your trading journal:
Insert graph pictures in your trading journal
There is no doubt to the fact that the foreign exchange market constantly moves. Whether you are on the verge of executing a trade or passionately carrying out your market analysis, there is never a point where the market pause for you.
As a dynamic market that presents many dynamic opportunities, you should also learn to be dynamic in your approach and market inferences.
While you take time to analyze what the market has been up to and how you have executed trades in past days, you would easily get lost in the world of numbers you have created in your journal.
Having a journal would not mean any significant change if you can’t properly interpret the market opportunities you had lost and the sweet market trend you rode.
Ideally, the market presents setups by price action movements. This means that the cuddled-up numbers are a bunch of repetitive market patterns that occur over and over again.
However, writing out these numbers and points of entries and exits of market trades wouldn’t really make you understand how big an opportunity you missed or enjoyed. In both cases, if it presented itself again, there is a possibility that you wouldn’t know what you should do with such an opportunity. Such scenarios are quite frustrating.
You need to include pictures of what the market pattern looked like when you took the opportunity. Or missed it!
Your journal would undeniably look self-explanatory now. Some pictures show exactly how the market played out and its response to some key structure levels.
Annote the market news
Notably, another piece of information worth including in your journal is the market news that previously affected your trades and markets analysis.
It’s no news that the underlying factors that constantly affect price action movement are news releases. News releases vary from time zones to time zones, and the market reacts to them very spontaneously.
In some cases, this news release would negatively affect your existing trades and close them in a loss. Hence, learning how to read forex news effectively is an added advantage to any forex trader.
There are a lot of these news releases. But not all could affect currencies and foreign exchange trade. Major news that affects the forex market involves Interest rate decisions, Retail sales, Manufacturing sector surveys, Inflation (consumer price or producer price), Unemployment, Business sentiment surveys, Industrial production, Trade balance, and Consumer confidence survey.
It is crucial to learn which news release is important enough to affect your trade. Additionally, you would also be giving yourself headstarts into properly annotating this news’s effect on your trade.
Although you might have your journal with precise graph representation, yet you still couldn’t figure out what went wrong with the trade or why it hit your stop loss. It’s a very puzzling situation for many traders, especially when analyzing their past trade.
Some might even conclude the trade was affected by a news release. However, they can pinpoint what news release affected the trade. Given that opportunity to face the market, they’d mostly repeat the same trading error they previously made.
Like every other information you have included in your trading journal, annotating the news is important. It keeps you ahead of the time and emotionally braces you for that kind of opportunity again.
However, you do not need to start news chasing. Sticking with the important news like the NFP and FOMC or news that really affects your trading plan would also do the trick.
Review and vote your trade
After successfully trading for a while, you would have collated many trading data and opinions about the market and your personality. Don’t you think you need anything more?
Don’t lure yourself into feeling supreme just yet. There are a couple of things you need to do for yourself. What are these things?
Take a review of your trading and journal it. Here is what you stand to gain:
● You would discover the trading strategy that has worked for you and are very efficient. So keep doing them!
● You would also find out a few of the trading practices that have not been working for you—so engaging in such!
These analytical reviews are effectively done if you break them down into bits and smaller groups.
The basic idea is to score your overall performance in trading. Hence you can divide your data by days of the week or by currency pairs you trade.
All of the data you have collated in your trading journal needs to be analyzed. Analyzing your personal trading data would open your eyes to the loophole present in trading practice.
Below are some helpful questions you should be asking yourself while reviewing your journal.
- What chart pattern worked best for you? Which did not?
- What changes should you make to your strategies that would help you avoid fakeouts?
- Are you too quick to get out of winning trades?
- Are you too afraid for your running trades to run back into a loss, or are you not so sure if it would hit your target?
- Do you hang on to losing trades for too long?
- How can you enhance your stop-loss procedures?
- Do you keep to your trading plan?
- Is your trading plan profitable?
- How many trade setup have you missed? And why?
- Where the trade setup you missed a good signal or setup?
- What can you do differently to secure more gains and prevent losses?
- Are you winning more trades with multiple lots or single lots?
- What is the right market environment that you have flourished in?
- Have you become too biased towards certain currency pairs?
- Which news release erupt volatility you would love to trade or rather avoid?
- Which trading session is most favorable to you?
The big idea of asking these questions is to help you improve your trading strategy. Ensure to journal the answers to all these questions. It would help you know what you need to work on about your trading.
You should also vote for all your trades! Using a scale of 1-10, rate all the trading you have ever taken. Start your rating with how well you feel your entries, profit targets, and stop losses are placed. Also, rate all your exit points of a trade.
Rate your mood in the trading journal
We are engineered with emotions. Therefore many of our actions or decisions are simply reactions to different environmental stimulants.
This goes to say that every of our decision can be affected by our current state of mind. Even trading decisions are not left out of the equation.
Since your trading decisions can be affected by foul moods, your mood becomes a factor that we should also study alongside other factors that affect our trade and decision output.
Are you sad, happy, excited, or uncertain when you took a trade? Then you should also factor that into your trading journal?
Please give a brief explanation about how you felt when you saw the market setups, what your hopes were when you entered the trade, what it felt like to be wrong when the market kicked against you, and what it also felt like to be right when the market moved in your favor.
Do you remember when you first heard about forex and how much hope you have built around trading forex? The feelings that came with being so good while you were practicing trading on a demo.
How you felt so prepared for the real trading world. The way you had sleepless nights because you were so engulfed in that you were ready to trade.
What it felt like funding your first account. You got the emotional triggers before placing your first trade and how your heart skipped when you placed it.
All these moments are different moods that would affect how you process things per time. For some, you might never get to feel that way again; however, it is important that you journaled all those experiences and thought as it all made up why you took the trade and won or lost.
Now I understand it’s a lot of extra work to do but think about the information you might have in a few months?
Data collection is the basis of every business; think of Google or Facebook; they want to know everything, and you have to do the same.
Your brain is not programmed for this; your brain is deceiving you; you need a well-detailed trading journal.
In the meantime, you can start from our free one, which does not contain all this information, but it is a start to start this good habit.