If you want to be a successful trader, you need to keep a trading journal. This is an essential part of the trading process, and it can help you improve your trading skills by leaps and bounds. In this blog post, we will discuss ten things that you must include in your trading journal — five somewhat subjective, and five you should track for EVERY trade. By keeping track of these important factors, you will be able to improve your performance as a trader and make more money in the markets!
5 (Somewhat Subjective) Items to Include in Your Trading Journal
So, what should you record in your trading journal? Everything!
Write down everything you feel and all the moves you make — before, during and upon closing the trade.
Your trading success is largely determined by your ability to assess the market environment, create an effective trading plan and strategy, execute that plan with precision, and review your trades when they are complete.
For traders, that means recording the following.
Write about you and your motivations for trading.
In order to make the right trading decisions, you must understand who you are as a trader and why you do the things that you do. This means understanding your motivations, lifestyle considerations, and why trading appeals to you. Taking the time to reflect on these aspects of your life can help guide you towards making better decisions in the market.
Write about your views on the market.
Before you make a trade, take the time to reflect on what you think about the market. What are your views on current economic conditions? Where do you think the market will go next, and why? Writing down your views on the market helps you to become more aware of what is driving your decisions and the assumptions that you are making.
Write about your research as you observe the market.
In order to make the right trades, you need to spend some time observing and researching the market. What news events are happening that could impact the market? What technical indicators do you think will influence the price action? Write about your research, so you can keep track of what is influencing your decisions.
Write about your mistakes and missed opportunities.
One of the most important parts of trading is learning from your mistakes. As you observe the market and make trades, take time to reflect on what you did wrong and what you could have done better. Writing these things down will help to make sure that you don’t repeat your mistakes in the future.
Write down your trading performance statistics.
Trading is a numbers game, and one of the best ways to measure your progress as a trader is by looking at your performance statistics. Things like your win rate, average profit/loss per trade, total profit/loss for the month or year and other important performance metrics are essential for evaluating your trading performance. Take the time to track these statistics in your journal, so you can spot areas of improvement and focus on what is working for you.
5 Things You Need to Record in Your Trading Journal for Each Potential Trade
As far as information to record for your trades, these are the five essential items to record in your trading journal for each potential trade:
Potential Trading Area
Unless you have a valid reason for entering a trade, you’re just gambling.
Why are you looking at this area to enter a position? At what price are you looking to pull the trigger? These could be determined by your setup rules in your trading plan. Maybe it’s the crossover of moving averages or price hitting a pivot level or Fibonacci level. No matter the calculus for how you plan on getting in, your potential trading area is an area between the current price and your entry trigger.
It’s a good idea to screenshot your chart for your trading journal so you have it for reference later. The potential trade area is a crucial part of any trading strategy, because it allows traders to identify areas of the market where they believe they have a high probablility of making a profit. By having this information readily available in your journal, you can quickly and easily refer back.
In sum, a trading journal should always include potential trade areas that you are considering entering into — including particulars like possible support and resistance levels, patterns or trends. Keeping track of these points makes it easier for you to identify any opportunities in the markets.
Your entry trigger tells you that once you’re in a potential trade area, when exactly you should enter the trade. It is important to remember to note down what triggered your entry into each trade so that you can look back at it later and understand why you made that decision. This is your specific entry technique and a very important part of your trading journal because it will help you decide when to enter a position in the market. Some entry triggers can be technical indicators, price action signals or simply a feeling that something might happen in the markets based on the fundamentals. It’s important to keep track of what triggered your entry into each trade so that you can look back at it later and understand why you made that decision.
You would never run blind into a busy crosswalk. In the same way, you should never enter blindly into a trade. Log why you think it’s safe and what the setup is. Just because you find a good area to trade doesn’t mean that you should rush into it. A good entry technique is important for any trader and provides the necessary confirmation in order to avoid taking unfavorable trades. Remember to combine a good entry trigger with a favorable potential trade area.
You must also include the position size that you took (or are considering taking) in each trade, so that you can track your risk management. It’s important to make sure that your position sizes never exceed a certain percentage of your account balance.
How big should your position be? You must decide, based on your risk management rules in your forex trading plan, what your position size will be. Position sizes must be based off of your account balance, and they should never exceed an acceptable risk tolerance level.
How much of your account are you willing to risk on a trade — 1%, 2%, 10%, 20%? Are you going to trade large position sizes or do you prefer smaller positions with wider stops? Position sizing is an incredibly important element of trading, as it helps to mitigate risk and ensure that your account can remain healthy for the next opportunity.
Trade Management Rules
This is another important element of a trading journal because it will help you determine when you should exit from a position, and how much profit or loss you should accept from each trade. Before you even consider entering a trade, it is essential to have a game plan in place. This involves thinking through how you will manage this trade, whether it goes for you or against you. Setting up rules for entry and exit points helps keep your emotions in check and prevents over-trading.
It’s important to think through how you will manage the trade BEFORE you enter the trade. Decide how you will react to every single outcome BEFORE you enter the trade. Know what you’ll do if the price goes here or there. Have your trade management rules planned out BEFORE you enter the trade.
Lastly, after every completed trade, it’s beneficial to write down some kind of retrospective review with an honest evaluation of what went right and what went wrong. This can help you identify any mistakes that you may have made, and it will also help you reflect on the trade to determine if there were any key insights that you could gain from it.
A few questions to answer for every position include:
- Was the position size enough to match the risk-reward scenarios, or was it too large or too small?
- Could you have entered at a better spot?
- Were you patient or did you rush into the trade?
- Was your take-profit realistic or optimistic?
- Was your take-profit properly placed — or did the market stop short of it or blow right through it?
- Was your stop-loss properly placed — or did the market stop short of it or blow right through it?
- Was there a news event or catalyst that caused the market to move how it did?
Use the answers to help with your position size, entry level, and order placement going forward.
In terms of how you managed the trade, the following questions are key:
- Were you able to watch the market while your trade was active? If so, how? If not, why not?
- Did you change your trade plan along the way?
- Did you move your stop-loss at all to protect profits?
- Did you take partial profit at any point?
- Did you close out your position based on your trading plan — or did the market throw you for a loop somehow?
Use these anwers to determine your emotional state and discipline.
The most important question to answer in every trade: Did you execute your trade according to your trading plan?
By keeping track of these elements in your trading journal, you will be able to improve your performance as a trader and reach your goals much more quickly.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.