If you are on the way to becoming a successful trader, you should have the habit of having a detailed record of your trades. Every Forex trader should maintain a Forex trading journal. A trading journal is a journal where you can record almost anything you want regarding your trading so that you can review them later. But the advantage of using a trading journal is one of the most overlooked things in trading. Mike Bellafiore, SMB capital partner says, “As a professional trader and managing partner of a trading firm, I cannot take you seriously as a trader if you do not have a journal. To me this would be like a football player not lifting weights.” Let us see some important benefits of using a trading journal on a regular basis.
Why do you need a Forex trading journal?
At any point in time, you can only hold a limited amount of information in your working memory or long term memory. But in your everyday life as a trader, you come across hundreds of interesting scenarios, a different type of market behavior and a variety of trading setups. You also go through a lot of experiences and emotions. Many of them teach valuable lessons and are worth recording. Without writing down stuff, we tend to forget 95% of the information that we would want to remember.
Learning lessons from your losses and mistakes are also very important. Experienced traders do a post-trade analysis after each winning or losing the trade. For every winning trade, they record the details which can be used later for identifying the similar winning setups. For every losing trade, they analyze and find out what went wrong and record that as well.
Using a trading journal also improves your trading discipline. The discipline makes you stick to your trading plan. Keeping and maintaining a trading journal certainly reinforces the discipline. This is because you have to have good discipline to carefully record the details before and after each trade.
Brett Steenbarger, Ph.D., Head of Trader Development at Tudor Investments says, “A trading journal keeps you constructive, keeps you learning, and keeps you working on the things that are most important. It is not a tool for simply rehashing the day; it is a tool for self-development.” Maintaining a trading journal also increases focus and patience.
What do trading experts say about using a trading journal?
People usually do not follow certain things unless they know that it is advocated by experts. We all have a tendency called the bandwagon effect. It is nothing but a phenomenon whereby the rate of uptake of beliefs, ideas, fads, and trends increases the more that they have already been adopted by others. This means that you only believe in something or do something because others are doing. So let us see what some of the experts say about the importance of journaling.
Jesse Livermore, the legendary investor, stresses how recording the details of losing trades and learning from our mistakes are important. Jesse says, “It is emotionally difficult to review your mistakes since the speculator must wade through his own bad trades and blunders. And these are not just simple blunders; these are blunders that cost money. Anyone who has lost money by investing poorly knows how difficult it is to re-examine what occurred. The examination of a losing trade is tortuous but necessary to ensure that it will not happen again.”
Dr. Ari Kiev, Trading coach, and book author says, “A review of statistics can help determine if a trader is overtrading in too many equities, scalping and trading too rapidly and missing opportunities, or trading too slowly and also missing opportunities to take profits.” Dr. Alexander Elder, author of Trading for a Living compares trading without a diary with shaving without a mirror. A trading journal is a mirror that reflects your own performance.
Experts have also stressed how maintaining a trading journal is essential for trading success. Dr. Van Tharp, Trading coach and book author have said, “Successful traders know that a consistent and systematic review of their daily trading activities is the direct path to growing and improving.” Dr. Alexander Elder, author of Trading for a Living also says, “Show me a trader with good records and I’ll show you a good trader.”
Getting started with Journaling
You don’t really need fancy software for using a Forex trading journal. All you need is Microsoft Excel. Many traders offer templates in their blogs that you can download and use. If you want to create your own template from scratch, you can do that too. First, decide the columns that you want to use in the excel sheet. A sheet that records all of your trades can have columns for things like Buy/Sell, entry price, pair, risk percentage, trade volume, results, number of pips won or lost, comments, etc. You can use multiple sheets in the same spreadsheet file and interlink them according to your needs.
If you do not want to use a spreadsheet, you can also use the trading journals offered by different companies like Tradervue, StockTrader.com Free Trading Journal, Edgewonk 2.0 Trademetria, etc. Usually, the service is free but paid versions may include some premium features.
Things to record in your trading journal
You can write just about anything in your journal. In fact, it is a good practice to record everything that you do or feel before, during and after a trade. There are tons of variables to success. So, the key to journalling like an expert is to record as much as you can, covering each and every important detail about your trading.
First, a Forex trading journal should contain details about you and your motivations. Why do you trade and what you want to achieve? Writing this down clearly helps you to fix your goals in your mind and review them often. You can also write about how you make your trading decisions and include the details about your trading plan.
You can also write down your general observations about the market. This will really improve your observation skills and will give you plenty of useful data to work with. Other than that, you should also include details about your trading mistakes and missed opportunities. Finally and most importantly, your trading journal should also include the statistics of your performance.