The importance of a Trading Journal

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  • Published At: 15.03.19 16:11
  • Last Updated At: 17.10.19 11:40
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dan-str9
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What is a Trading Journal?

A trading journal is basically a compilation, in any level of detail, of the trades executed. As simple as that. It can have many different formats: a simple text file, a spreadsheet, a web or even a mobile application, etc.

 

What should it contain?

As a minimum, it should contain these details for EACH TRADE ENTRY:

  • Date of trade execution
  • Date of trade closing
  • Currency/Pair
  • Position size
  • Direction (Long/Short)
  • Entry price
  • Stop loss
  • Take profit
  • Exit price
  • P/L
  • Comments

Highly recommendable that it also includes:

  • Risk/Reward ratio, based on entry + stop loss + take profit
  • Type of signal behind the trade (reason)
  • Current balance to keep track
  • Percentage of profit/loss for the trade in relation with the balance

Optional / nice to have:

  • Graphing tool to track the balance progress and trades statistics
  • A currency converter (so you can include different currencies in the trades but keeping the balance in a single one)
  • A position size calculator
  • A way to "evaluate" the trade (it can be simply a number -1 to 5 or 1 to 10-, to determine the quality of the trade, from the trader's perspective)

How the Trading Journal helps?

The main purpose of a Trading Journal is -initially- to leave record of every single trade executed, but if the journal contains enough information, it can be a really powerful tool for the trader, helping in a few ways, such as:

  • Helping with "best practice" routines (specially for not experienced Traders):
    • If the trader needs to input certain information in the journal every time he/she makes a trade, such as Stop Loss price, Take Profit price or Reason/Signal used, it will create a number of good habits:
      • Using a Stop Loss!! and Take Profit from the beginning.
      • Forcing the trade to be done with a reason behind it, not purely emotional / FOMO.
      • Realizing if the Risk/Reward ratio is good enough to actually go for it, or think it over.
  • Having a more objective view on the trades executed:
    • When the trader checks the journal after some time, once the "heat of the moment" is gone, he/she can observe and study the quality of those trades, and determine if they were done properly or not, and learn some lessons to avoid same mistakes for bad trades, or encourage those of the type/reason which ended up well.
  • Improving the trader's strategy:
    • With a review of what trades went good or bad, plus the evaluation done after each trade, the trader can improve his/her strategy by simply compiling those trades evaluated with "high marks" and finding common patterns, so that it can be determined if certain signal worked better than others, or reduce/eliminate the signals that didn't work.

 

Where to find a Trading Journal?

As mentioned earlier, you can create a Trading Journal in a simple text file, or spreadsheet, if you have the skills to get everything with its formulas, graphs etc. Also it's not hard to find some empty templates/spreadsheets to download from the Internet.

But there are plenty of websites providing this Trading Journal service, as well as specific applications made for that. Some in form of subscription, some in form of a unique purchase item, and a few ones for free (but most of them as a limited version of the earlier ones). Some of them even connect to the exchanges directly to extract the data via API or import/export. A quick google search for it will show many sites with different options.

I personally use a spreadsheet with practically all the above fields. If you're interested, PM me and I can share an empty version of it.

 

Conclusion

If you have read until this point, you have probably realized about the power of keeping a Trading Journal. It's simple enough and yet so powerful and helpful in both short and long term, by simply keeping a record of everything you do, it helps in self-educating when you're starting by creating good habits and routines that you end up automating, and when you become more experienced, it helps you to review and analyze your performance, signals that work best and worst for you, and basically FIND YOUR WAY into trading. That's the power of the journal.

 

Hope this helps as much as it helped me!

 

D.

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