One of the most useful yet most overlooked tools in trading is a trading journal. It is essentially a recap of your trading history that allows you to look back at your operations. With all your ups and downs well documented, you can learn from the successes and failures of the past in order to improve your deals in the future. What makes a good trading journal and why should every trader have one? Read on to find answers to this and many other questions.
What is a trading journal?
For most people, the word “journal” is associated with a diary, something to keep your thoughts and plans organized. A trading journal is exactly that — a written documentation of every step you take while trading. Just like sportsmen keep a diary of their diet and exercises or doctors keep their patients’ medical history, traders need to document their own progress in a trading journal.
Trading journal advantages
There are many benefits in keeping a trading journal:
- All the outcomes of your trades are documented, you can check them at any time;
- You are able to analyze deals and understand your strengths and weaknesses;
- You can find correlations between assets and use them to your advantage;
- Past performance analysis can help create a better trading plan for the future.
In general, reflecting on your previous deals is a good practice if you want to be mindful about trading.
What makes a good trading journal?
A good trading journal must include detailed information about the trades that you have made. It is important to log every single deal without leaving some out. The journal is only for you to look at, so there is no need in trying to make it look better or worse than it actually is. Be honest with yourself and specify all the details. For example, if you didn’t enter or exit the deal on time because you got distracted — make a note about it. This way, you will not only see market patterns, but behavioral ones, too.
To make sure that you included all the main elements in your trading journal, you may use the following checklist:
- Date and time
- Asset
- Reason for entry
- Investment in the deal
- Position size
- Multiplier
- TP/SL
- Entry quote
- Trade direction
- Used analysis tools
- Commissions
- Exit quote
- Result
- Any related comments
These are just some of the things you may include in your journal. You can experiment with it until you come up with your own perfect version of a trading log. The truth is, there is no one size fits all in this matter so you will need to get creative.
Choose the best for you
Spreadsheet, mobile app or a notebook? The format of your trading diary might determine how often you will end up using it. It is crucial to choose wisely and stick to what you’re comfortable with. You might be someone who prefers to write everything by hand, or, on the contrary, somebody who needs everything digitized and quickly accessible. There are pros and cons to both formats.
With a spreadsheet, you can quickly copy your trade details and edit them anytime. You can leave comments, add columns, and search for deals. The additional bonus is that the spreadsheet will be available on any device.
Many traders stick to an electronic version of a trading journal and it is truly hard to find any downsides to it. Another option for a digital trading journal is an app. Some apps combine the journaling feature with analysis tools which makes them extremely helpful for traders.
Still, some traders might prefer the old fashioned way and use a hand written version of the journal. It might require additional time to set up, but you will be able to customize it the way you want. Plus, writing everything down by hand might help you slow down and analyze each trade instead of mindlessly copying the details to the spreadsheet.
Regardless of what you choose, there is an option for everyone and it’s just a matter of taste and habit. You can experiment and try them all before you stick with one. After all, the most important thing is to be consistent and document every single deal.
Bottom line
A good trading journal is one of the steps on the ladder to success. Don’t skip it: it might give you a better perspective on the way you trade and help prevent mistakes in the future. Choose the best way of journaling for you and give it a try. If you already use a trading journal, let us know your thoughts in the comments below.
