Every successful forex trader knows that keeping a journal of the trades should be in the trading plan. Why is it important to keep track of all trades you make? What can the analysis of good and bad trades help you with? How can you minimize the risk with a trading journal?
Keeping Track of Mistakes in the Trading Journal
Failure is a scary word for all of us. Ever since you are born, you are taught that mistakes are perceived as bad, embarrassing and should be avoided at all cost. While in fact mistakes are opportunities to learn, truly understand something and improve your chances of success when you try again. The key is, of course, to analyze the mistake and not to make it again.
Forex trading is no different. Mistakes are unavoidable and, instead of crying over the spilled milk, it is important to know when and why did you make it and what can be done to avoid getting into troubles the next time. It doesn’t matter whether a bad trade led to big or small loss – there is always something to learn from it. Mistakes are the perfect tool to give a trader an immediate feedback and encourage finding out why the money were lost.
Why to Keep a Trading Journal
A trading journal should contain not only the detailed analysis of the bad trades, but also the notes of the profitable trades. What happened? Why did you make a decision to trade? Why did the trade go against you? What did you do right this time? How did you feel at the time of entering the trade? How did you feel afterwards?
There is no such thing as only good trades. Every single trader goes both ways, however what is important is the overall profit that you make in a long run. And in order to limit the number of bad trades, it is important to keep track of all the decisions you make during the trading hours.
Another reason for keeping a forex journal is to stay organized and disciplined. Following the trading plan is far more difficult than it sounds. All traders are influenced by pride, greed, anger, revenge etc. at one point or another. The discipline is necessary and since most traders cannot keep it straight without writing it down, a journal is a perfect tool to keep those emotions from poisoning your decisions.
What to Write?
Keeping track of your trades is the key to the speedy improvement of your forex career. How detailed your trading journal should be is up to you, however there are couple of suggestions. Let’s consider some of the things that should be included in your journal:
1. Know the “WHEN”.
Write down the date and the time you have entered and exited a trade.
2. Know the “WHERE”.
Record which currency pair were being traded and whether it was long or short trade.
3. How Much?
Keep track of the entry and the exit prices. This will show you whether the trade turned out to be profitable or disadvantageous.
4. Size Matters!
Document the trade size (the amount of lots you took), even if you are trading in mini-lots.
5. Plus or Minus
Write down the number of pips you gained or lost. This will give you an overall performance right away. (for example, +27 pips, -10pips and then +52 pips)
6. Profit or Loss
Record how much money you made or lost. This will give you a chance to find the biggest profits and losses among all the trades and figure out what went well and what turned into a bad decision.
7. Market Session
Write down which session you were trading in – New York? London? Asian?
A great way to see a complete picture is to have screenshots of the particular trade. You can write down your thoughts and ideas along the screenshot to analyze your decisions better.
Keep an extra space to write down your feelings and emotions (before and after the trade). This can show you whether greed, anger or revenge took over your logic at some point! This is not only beneficial to forex trading – you can actually find out a lot about your own personality!
As I mentioned earlier, whether your forex journal is basic or super detailed is up to you. The idea is to write down everything about the trades that seem important to you. If you think that you should record your thoughts and ideas, definitely go for it. The more you write, the better picture you will have at the end of the day.