Who actually keeps a trading journal and what is the point?
Keeping a trading journal is very helpful in achieving trading success and profitability. ALL successful traders keep a journal reciting their trades. It is a surefire way of monitoring progress, tracking goals, reviewing performance and staying focused. It WILL help your performance, so we recommend for you to use one.
As we’ve already discussed there are many key traits that successful traders show. One of the main traits is discipline. A disciplined trader is usually a profitable trader. Keeping a trading journal helps traders stay disciplined and it’s the quickest way for a trader to learn. Constant learning means improved trading performance which equals higher PROFITABILITY.
What do you track in a Trading Journal?
The most important items that we believe should be included:
– Currency pair
– Trade Volume
– Trade position (Buy or Sell)
– Entry price (Market or Entry order)
– Target price (Set profit exit)
– Stop loss (Set loss exit)
– Risk / Reward ratio
– Rationale behind trade
– Estimated time frame
– Review Trade
– Total daily / weekly / monthly profit
This is a lot of information to keep track of in a trading journal. However, it’s essential to review all these different components of the trade, as this is the only way to learn and improve in order to consistently profit.
Why is it important to keep a Trading Journal?
Remember human psychology is also an essential part of trading. Think of a trading plan to be critical in overcoming human psychology and removing the emotion from trading.
Lets look at an example, below.
A trader wants to open a EUR:USD position with a clear trading plan.
There is a support level on a chart at 1.1500.
The traders believes the EUR:USD will bounce off that support level and go up.
The trader opens a long position with a volume of 1 standard lot, at 1.1520. A stop loss is entered at 1.1491, a 29 PIP downside risk. The trader decides that they want to have a 1:2 risk/reward ratio, and therefore enters their take-profit limit at 1.1580.
The trader is happy with the rationale and enters all the details of the trade into their trading journal.
What happens next?
The EUR:USD retreats slightly to 1.1508 but does not go any lower. Then it suddenly moves higher than the 1.1520 and quickly moves to 1.1550. The trader is in 30 PIPs of profit, or $300. The trader then closes the trade.
The trader is happy, but is this a well executed trade?
The original trading plan had not been followed. The target price was 1.1580 on a clear 1:2 risk/reward ratio.
The trader continued to watch after they closed their position, and the market continues upwards and hits the target price of 1.1580. So, if the trader would have followed the original trading plan, they would have made an extra 20 PIPs (or $200).
This is a prime example of poor trading and a mistake for FAILING to follow the original trading plan.
- Keeping a trading journal is essential to becoming a top trader.
- Having a trading journal allows traders to separate their emotions and instincts from trading.
- A trading journal needs to be extremely detailed.
- Professional traders keep trading journals and are constantly reviewing their trades.