What Exactly is the Trading Journal?
Simply put, a trading journal is a log where you can keep track of all of your trades. You should keep a trading journal just like professional traders do so that you can assess your performance based on comparisons to your own historical performance.
Maintaining a journal can help you determine the areas of your trading performance that need the most work. They are an efficient way to keep track of information.
How Useful is the Trading Journal?
Some of the most important factors to consider when deciding to keep a trading journal are:
- They show you where you’re succeeding and where you’re falling short in your approach.
- More regular trading could occur if traders kept journals.
- The diary might serve as a useful reminder to keep you on track.
- If you keep a trading journal, you’ll have a resource for determining which trading tactics work best.
The practice of keeping a trading journal is one of the most basic and yet powerful tools for enhancing a trading strategy. Trader psychology, risk management, and trading strategy are all components of a comprehensive trading plan.
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How to Create A Trading Journal
It doesn’t take much time or effort to start a trading journal, and you can modify it to fit your needs. The following are some guidelines to follow, with explanations of their significance provided below:
- Pick one: a book or a spreadsheet. Consider making use of a spreadsheet, as suggested by us.
- Find out what details you want to keep track of. Transaction specifics (trade date, underlying asset, position size, etc.)
- Don’t wait to record your trades; do so as soon as you’ve set your stop losses and taken profits.
- After a predetermined time frame (every day, every month, every week), collect the data and evaluate the trades.
Step 1: Choose a book or spreadsheet
Spreadsheets are highly recommended due to their in-built analytical features. As we will discuss in Step 4, these can serve as a helpful tool for introspective consideration of the transactions.
Step 2: Identify the information to record
This is the basic outline for a trading journal:
In this sense, the standard format serves as a model for the more basic type of trade journal. You can use it to reflect on your trades, but by adding some additional criteria, we can make the journal much more useful.
Important details to think about including are:
Trading Motivation: This could be based on either Technical or Fundamental Analysis, or both after making a few trades, you’ll have more data with which to evaluate whether or not your trading activities are yielding the desired results. Additionally, this may help you choose between technical analysis and fundamental analysis as a trading strategy.
Conviction: How strongly you believe in the exchange itself is your “conviction.” We can classify the conviction as “high” if the trade is being made on the basis of a technical pattern that “checks off” several guidelines.
It’s possible that the conviction behind a trade could be medium or low if the underlying factors (such as the pattern) aren’t particularly strong.
A quick peek at the definition of Shares, Factors, and Types of Shares
If you keep track of your level of conviction, you can determine the proportion of your trades that resulted in a profit for each level. You could use this to decide if you should only trade when you are very confident in your analysis.
Other: Write down anything else you think is significant enough to document. When making a trade, the emotional state of some investors is also a consideration. Write down whatever you think will be useful.
Step 3: Record the trades directly after the trade
Get in the habit of writing down the transaction details as soon as possible after each trade, while the information is still fresh in your mind. This way, you can easily recall your rationale for making the swap when needed. After you’ve set your stop-loss and take-profit levels, only then should you proceed.
Step 4: Compile the data and reflect upon the trades
Once you have collected enough information, usually over the course of several months, you can compile it in your trade journal.
If you’re keeping a journal and you’ve established a conviction criterion, add up the number of profitable trades you made at each level of conviction. With this knowledge in hand, you can decide whether or not you should limit your trading to times when your confidence is particularly high.
If you had strong conviction in 10 trades and 8 of them ended up being profitable (Take-profits were reached), you would have an 80% success rate based on your past trades.
With only two winning trades out of ten, a low level of conviction can reduce your success rate to 20%. This leads one to the conclusion that trading is only worthwhile during times of extreme confidence.
This can be done across a wide range of criteria, allowing you to assess and enhance your trading based on your findings.
Sample of a Trading Journal
To help you get started, we’ve provided a sample trading journal template that accounts for the selection of trading approach.
Following a discussion of the various criteria that could be included in your journal, the following table shows one way in which all of this data could be organized in a spreadsheet.
If you would like to use the above template on a personal level, you can do so by downloading it from page five of our no-cost guide on developing self-assurance in financial markets.
Conclusion
Beginning traders should make keeping a trading journal a top priority. Keeping a journal is crucial for traders who want to try out various approaches and determine which ones yield the best results for them.
In order to determine if one’s current trading strategy is successful, keeping a trading journal is crucial. In a nutshell:
You can keep track of your trading actions in a trading journal.
They facilitate the evaluation of various trading strategies and plans by traders.
An individual’s trading style’s strengths and weaknesses can be better understood with the aid of a trading journal.
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