Even though each broker provides a record of your trades with some associated statistics, such as max drawdown, number of winning/loosing trades, leverage effect, profit factor and others, it is still very useful to have your own trading journal. Why is it so important, what should it include, how do you create the most effective one possible? Read on to find out.
Top 5 reasons to write a FOREX trading journal
Why to write a FOREX trading journal?
A FOREX trading journal can be compared to private diary, one that is dedicated to FOREX trading. You can write down information about your trades in order to be able to look back on them to see what went right and what went wrong, what could have been handled differently, how efficient your trading plan is, how you managed your emotions, etc.
The main reason why you should write down your trades is to be able to have help to your next trades by analysing what you have been doing in the past and why.
- Historical record of your trades
Your trading journal will become a database of your trading performance, as well as your personal performance. It won’t just describe your trades in a statistical matter, but it will also describe the reasons behind each trade.
- Trading Plan verification
Successful traders work hard on their trading plan before they start trading. A trading plan mainly describes a trader investment strategy (entry/exit signals to follow like breakouts or support/resistance levels, money management to apply, such as limit and stop-loss levels, leverage effect, capital to use, margin etc.). Your trading journal will help you track your trading plan efficiency and make adjustments as needed.
- Trades retrospective
Being able to write down every detail of your trades will allow you to verify the method you’re applying to your trading, and how well your trading strategy performed in different market conditions (bullish vs bearish market, high volatility market…). You’re able to come back to what happened and analyse the results and the decision process behind each of your trades.
- Trade planning tool
Looking back on your trading data will provide useful information on what your future plans for each trade should be, as you can adjust your parameters based on what has and hasn’t worked. Your trading journal will then help you to better plan your upcoming trades by setting parameters, if your trading plan is not yet sound.
- Improvements & Mistakes
Your trading journal should include detailed information about your performances as well as your decision-making process. With well thought-out information, you will be able to assess changes you need to make to improve your trading. You may also spot errors/mistakes that may be polluting your trading.
Must-haves of a FOREX trading journal
A trading journal must include all the “boring” statistics about basic trade details, such as:
- The date and hour of entry and exit position
- The currency pair you are trading
- The size of your position
- The direction of the position (BUY or SELL)
- The level of entry, stop-loss and target
- The risk
- The trading profit or loss
You should also have “performance statistics” about your trades, such as net profit/loss, percentage of winning/losing trades, biggest winning/losing trade, average trade gain/loss, max drawdown etc.
After writing down these basic stats, you need to think about the reasons behind each trade. Why did you decide to invest on this currency pair? Which signals did you follow?
You need to have an idea of what happened before the trade, during and after. How have you distanced yourself from your emotions? Did you follow your trading plan? Have you applied your management rules?
Think about the following while preparing your trading journal:
- Why have you decided to enter the market?
- Did you set your stop-loss and target levels when you opened your trade?
- Did you change your money management parameters during the trade?
- How did your emotions affect your behaviour?
- Were you confident or doubtful about your trading decision?
- Entry/Exit observations
- Missed trading opportunities or mistakes
You should take care to write down every detail that you can think of while journaling while the trade is still fresh in your mind, as you won’t be able to remember later when you look back on your previous trades. You can then know what mindset you were in when you were more successful.
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