A forex trading journal is essential for any serious trader who wants to be proficient in trading. It is a tool for self-evaluation for traders. In this journal, the trader can keep a record of their trading activities. Through keeping a record, traders are able to compare their previous activities and have a critical evaluation of themselves. Trading journals highlight not only your strengths but also your weaknesses so that you can improve them. With the help of them, you can select the best trading strategy among many strategies.
Successful trading is based on three elements. They are;
- Having a well-developed trading plan.
- A trading system for the plan.
- Continuous improvement in the plan and performance.
To keep these things in the notice, every trader should create a trading journal. It helps traders in monitoring their performance and that of their trading system. Inconsistent trading systems have comparatively less impact on inefficient trading performance than an inefficient trader who does not comply with the system’s trading rules. Along with other factors such as selecting the best broker for forex trading, maintain a trading journal is also important.
Steps to create a trading journal:
The creation and maintenance of a forex trading journal is simple and easy. Following are the simple steps to be followed when creating a forex trading journal.
Step 1: Choose a spreadsheet or a book:
The first step is to make your choice between a book and a spreadsheet. The recommended and more feasible option is to choose a spreadsheet as it proves to be more convenient. Secondly, spreadsheets offer analytical functions as a built-in option. They are helpful for reflecting upon the recorded trades.
Step 2: Identify the information:
The second step is concern with the identification of information that is to be record in the journal. The main criteria included in a trading journal consist of currency pair, conviction, size, points, the strategy used, date, length and the status in terms of success. The information based on this criterion provides a much detailed and better analysis of trade activity.
The useful information that you must include in it should include the reason for trade. You should include this thing in your journal about why you are doing trade. The reason may be technical analysis or fundamental analysis, or even a combination of both analyses. After executing multiple trades, a trader becomes capable of analyzing whether your reasons are getting you positive results in terms of tangible gain.
Through this, you can select which strategy works the best for you to achieve your trading objectives. Another piece of useful information is conviction. It refers to how you feel about trading you have been doing.
The conviction is listed as high in case of trade is based on a pattern that checks off guidelines or a technical pattern. However, in the case of not so clean pattern, the conviction is listed as low or medium on the basis of factors upon which trade is based.
Noting down the conviction helps in the calculation of successful trades’ amount for each conviction. It also helps in making decisions for the timing of future trades. Other than these pieces of information, you can include whatever you feel is important.
Step 3: Timely recording:
The third and very essential step refers to recording the trade soon after it takes place. Make it a habit so that you do not forget essential details about the trade by timely recording it when it is still fresh in your mind. It is also helpful in remembering the actual reason for the trade. You must do this after you place take-profit and stop-loss.
Step 4: Compilation and Reflection:
This step should be performed after some time has passed, say some months, so that you have enough data to reflect upon and compile. If you maintain conviction criterion, which you preferably should, you may sum up this column to calculate successful trades at different ranks of conviction. It enables you to decide whether to base your future trade on high conviction or not. Just like this, you can try other criteria also to drive results.
Other essentials for creating a trade journal:
Some other significant factors to keep in consideration while creating a trade journal for forex trading are discussed below.
You must add your analysis of the market in the journal. It helps you to get prepared ahead of time and market. Otherwise, you will be at the risk of missing many potential opportunities. By this, when you will be able to utilize most of the opportunities in the market, you will ultimately end up earning more money. Your market analysis depends on your trading approach. You can do it before market opening or after its closure on weekends.
Your market analysis will most probably get long. However, you must not spend excessive time on that. To save your time, you can summarize your findings in a way that provides you with a quick overview of potential trading setups. When all information would be available at a glance, it will be easy for you to read. An easy way of summarizing your analysis and presenting it in an organized form is by dividing the trading setups into different categories. Secondly, you can add setups along with their timeframes in it.
After successfully creating and maintaining a trade journal, you will need to review it after the trade. Reviewing helps in improving trading outcomes for future trades. For reviews, you should first highlight patterns that resulted in losses. Identifying continuously poor-performing setups is important for their elimination. It will surely reduce your loss’s ratio that means an increase in the profit.
Secondly, you need to identify setups leading to wins or positive outcomes. These setups must be kept in practice to continue receiving desired outcomes.
The third task is to find ways and tactics to minimize losses in the future. This is something that you will get to know after a close analysis of your trade setup. The answer may reveal timely cutting off losses, using a filter to reduce losses or change the time you trade. Whatever it may be, analyze keenly and then implement it.
Lastly, you must look for tactics and techniques to maximize your wins or profits. If you reduce your losses but do not make efforts to increase your profit, it will surely be an act of foolishness. For maximizing profits, you should have a close look at your successful setups and extract answers out of them.