What is a forex trading journal?
A forex trading journal is essentially a record of your trading activity. Every trader must maintain a trading journal to keep their emotions in check to see how the technical setups perform.
Emotional trading can often turn out to be a huge mistake for forex traders. It helps to maintain a record of your trades, how your strategy has affected them and how you felt at that point of time when the trades were carried out. Keeping track of this would simply help you learn from your trades and help in improving your trading methodology.
With a trading journal, you aim to assess how your trading strategy has performed and how well you were able to execute the strategy. It is important to have a well-thought-out trading strategy but it should also be followed to ensure your success as a trader. That’s why you need a trading journal.
Trading journals could exist in any form and in any financial market. It could be an old-school notebook or an elaborate excel sheet. What you would find out from this article is all the information you must be recording and how you can interpret the same to assess your trading activity.
Trading journals demand time and commitment but if you make good use of the journal, it may turn out to be a great trading asset.
Sustained successful trading has three major elements:
- Creating and implementing a good trading plan.
- Maintaining a good trading system as part of that plan.
- Assess and improvise those trading performance and plans.
Why should you keep a trading journal?
Trading journals play an important role in helping you execute your trading strategy, the way it is best implemented. Using the trading journal properly could help you learn about proper fundamental analysis, carry out technical analysis as per plan and mitigate your risks accordingly. These goals could be divided further into:
- Historical record
There would hardly be a trader who is able to clearly recall the success and failure of all the trades they had carried out in the past. They would also not be able to tell you why the trades turned out a certain way. When you maintain a record of your past trades and the key details around them, you will be able to accurately assess your past performance. The records you maintain will be a great help in understanding which forex pairs are able to operate best with your present strategies and how accurate your technical analysis turns out.
- Planning tool
You could use a number of different indicators and strategies in forex trading, which might make it hard to stay organized and keep a record of what your trading intentions were. A trading journal helps you manage your trades, plan them in advance and also aid in sticking to the plan, ruling out any emotional decisions.
- Strategy alignment
Keeping track of your trading strategy and how successful it turns out eventually could help you improve your methods in the market that keeps changing. An easy-to-understand, detailed journal would play an important role in saving all details about the trade and the market conditions.
What should be in a Forex trading journal?
The trading journal you maintain must keep a record of everything. What were the market conditions like when the trade took place? What was your strategy? How confident were you when the trade was placed? These are some variables at play.
You may break this down into parts. The first refers to the technical details of your trade: currency pair, size, direction, etc. It is best to add printouts or screenshots of the actual chart which reflects your trade. Several trading platforms maintain this record on their own but having a journal will help you add your observations against this data.
Here is a checklist of items that you would want to add in all your journal entries. With experience, you may not have to add a lot of detail about the currency pair or direction you picked. Rather, you could spend time assessing the market and shaping your strategies in a better way:
- Make it a point to start the journal before the trade, and end it after the trade.
- Ensure that you are writing down everything. Don’t miss the details. Write honestly, if you were distracted by some online game as you traded and missed exiting your trade at the right time, mention that too.
- How do you feel when you place a particular trade? What are your emotions like? Make note of them as well.
- Ensure that your journal has everything right from your observations, your trading and the forex market.
- Make it a practice to take a screenshot of intraday charts of every day actions and put your comments against them. Observe and write down those observations about the patterns.
- What was the direction of your trade? Did you buy (go long) or sell (go short)?
- What was the time frame of your trade? What was the time you entered the market and when did you close it?
- Which strategy(s) did you use? What was your trade based on? Was it news? Did you any technical analysis before opening the position?
- At what rate did you put your stop-loss and limit orders placed at?
- How confident were you about your trade?
- What was the total number of pips that your trade rose or fell to?
- Was your trade successful? Did you earn money or did you lose?
- What did you feel when you were in the trade and after you closed your position? Were you able to predict how the market would behave? Did you close too soon? Were you being greedy and thus waited for too long only to watch the prices fall again?
- Once you’re in the market for some time, you will be able to see the patterns that emerge.
- A trading journal can turn out to be a great tool that helps you learn and identify the trade setups as you trade. Remember that there is no such thing as a silly entry in your personal trading sessions journal.