Trading is like a battlefield where only the most strategic and patient warriors emerge victoriously. In this regard, you need a trading journal, which acts as a weapon to potentially succeed in trading various assets. A trading journal keeps all your trading activities to easily identify the areas in which you excel and those that you fall short in and work on improving.
With a trading journal, you will also be more consistent with your activities since it is easier to track your trading frequency. On top of that, having a trading journal encourages accountability, which results in discipline and developing the best trading strategies.
We have prepared this guide to help you understand how to create a trading journal. As a result, you will know how to effectively keep track of various trades by developing a trading plan that will help you potentially succeed in your activities. However, before we get into creating a trading journal, let’s first understand what a trading journal means.
What is a Trade Journal?
A trade journal, also known as a professional journal, is a log that traders use to keep records of their activities. A trade journal reflects previous trades’ performances so that you can easily evaluate yourself and improve on areas in which you fall short. Simply put, a trade journal acts as a record-keeping tool and can quickly steer you towards a potentially fast and successful trading career.
Keep in mind that you can track your trading activities using different tools, including excel sheets, trading diary apps, Google Docs, or a paper trade journal. Using your journal, you can write down the asset to trade, time and dates, entry and exit points, and your experience while executing a particular trade. You can also include the outcome of your activity if taking short positions and try to identify your weak points.
How to Create a Trading journal
May traders are sceptical about creating a trading journal because they do not understand how to go about it. Below, we have explained in detail all the procedures involved in creating a trading journal so that you can effectively plan your trades, thus maximising your potential to succeed.
1. Your Trading Routine Should be Well-Structured
There are various ways to have a well-structured trading routine, and one of them is finding the best broker that supports you and is available anytime. You should also include the below habits.
- Make Trading a consistent activity: You should always have a routine that works well for you so that you have enough time to plan, create a watchlist, and prepare fully for your trading activities for the day. We understand daily routines may vary with individual needs, but it is advisable that keep all records of your trading activities in your journal.
- Conduct thorough market analysis: Whether you are getting started in your trading activities or are an experienced trader, it is important that you make market analysis part of trading activities. This also means that you should include how you conduct these analyses in your journal. The more you keep track of these data, the more you learn and improve your skills. So, always record your observations regarding the financial markets and all the procedures included in your analysis. This way, you will understand the markets better, thereby maximising your chances of executing profitable trades.
2. Include Your Setups in a Trading Journal
You want to be honest with yourself and include every detail regarding your trading activities in your journal. Some of the common elements to never leave out of your journal include:
- Markets Insights: Becoming an independent or professional trader is not easy, especially when identifying the market trends that affect your setup. With a trading journal, you can write all the market insights, thus using the information as a reference when creating a trading strategy in the future. As they say, history repeats itself, and you never know when your journal will save the day.
- Identify Entry and Exit Points: As TradingGuide experts, we usually advise our readers to have a trading plan before investing. This should include identifying the best trading and exit points, which continues to be challenging for most traders. Since you will have to figure this out at some point, it is important to log your progress in your trading journal. Additionally, analyse and monitor your trades to quickly improve your skills and ability to identify the best entry and exit points. With time, you will see that you are becoming more skilful, independent, and successful.
- Choose the appropriate lot size: Choosing a lot size means deciding how many shares or assets you want to trade. This means that you should always have a budget and include it in your journal. You should also keep records of all transactions and activities in a trade. Remember, start your trading activities with small amounts of money, especially if you are a beginner. Do not be aggressive but smart by taking short positions and noting your progress while increasing lot size gradually once you become more consistent.
- Go Long or Short: Going long or short will depend on the asset you are trading and the market conditions that affect its prices. Whether you go long or short, keep records of your activities and progress. This way, you can easily monitor your strategies and identify those that work best for short and long positions.
3. Stop-Loss and Take-Profit Orders
Trading is risky, and while you have a chance of earning profits, losses are inevitable. In this case, you should know when to apply risk management controls to avert huge losses. You can record how you are protecting your trades against losses in your journal to help avoid repeating the same mistakes. Take a look below at the common risk management controls.
- Stop-loss Orders: A stop-loss order is like a command you put in your trade to close a position once it reaches a certain level. Stop-loss orders are meant to minimise the amount of loss if a trade goes against what you had anticipated. Simply put, your open position will close automatically once its price falls to a certain level. By noting down all data of your previous trades performances, you can easily implement stop-losses.
- Take-profit Orders: Take-profit orders are the exact opposite of stop-loss orders, whereby a trade closes automatically once its asset’s price rises to a certain level. Simply put, this order shows how much you are willing to earn as a profit in a single trade.
Another risk management control that many traders overlook is learning how trading works before taking a plunge. Write down what you have understood and are capable of and make use of brokers’ demo accounts to practise. You can then revisit your notes to identify the mistakes you have been making and work on improving your skills.
Metrics to Include in a Trading Journal
You may be confident that you will remember all the small details regarding your trading setup, but it will be challenging to do so with time. You need to know the trading activities you conducted on specific days to easily keep track and make the best decisions. Here are the significant metrics that should always appear in your trading journal.
- Date: Always write a day’s date before putting down any information regarding your trades. This is so that in the future, when reviewing previous activities, it will be easier for you to track your progress and determine your capabilities.
- Price In: Write in your journal every entry point and why you chose the entry-level. Identify the size of trade executed and how the market performance was during that period.
- Price Out: Just because you are closing a position doesn’t mean you shouldn’t record this process. You want to be able to identify what challenges you experienced exiting a position so that you can make the best moves moving forward.
- Time Frame: Note the time of day that a trade was opened and closed, especially when taking short-term positions during the day. You will realise that some trades are best executed during morning hours than afternoon or evening.
- The Amount You’re Risking: Always have a trading budget and stick to it. You should also record the amount of money you put up in a trade and make sure you are open to losing the money if a trade doesn’t work out as anticipated. You should also know the amount of losses you can afford to incur before trading and set up stop-loss orders to avert them.
Tips for a Successful Trading Journal
The way you handle your journal will determine how quickly you become skilful and potentially succeed in a trade. By following our guide above, you can easily mitigate losses and maximise profit potential. You can also follow the below tips for more efficiency.
- Identify Activities that Contribute to Losses
Trading is challenging, and mistakes are bound to happen, which leads to losses. Even the most experienced traders have their bad days trading, and it is important that you prepare yourself for times like this to avoid emotional outbursts. So, write down what contributes to your losses in your journal and create time to improve in those areas.
- Know the Elements that Contributes to Profits
Making profits doesn’t mean you are good enough – it might just be luck. Therefore, do not only put your attention on elements that contribute to your losses but also profits. Using your trading journal, identify and note these factors. You can then review them to analyse the patterns for the data you collect and work on being even a more strategic trader.
- Analyse Data and Seek Professional Assistance
Do not write all your trading activities’ history in your journal and leave it lying around somewhere. If you do not plan to use the information in your journal to be more skilful, you can as well not have a trading journal. The only way the data in your journal can be useful is what you do with it.
Therefore, use the data to understand the markets you trade and use resources provided by brokers to improve your skills. You can also reach out to a professional financial advisor with trading experience for more guidance.
Benefits of a trading journal
A trading journal is an important tool that all traders and investors must have to maximise their potential. Not only does a journal help you identify key trading areas that require improvement, but you also get to be more strategic. Note that you should make it a habit to use your trading journal before, during and after trading periods because of the following.
One of the reasons most traders do not make profits while trading is the ability to create a strategic plan. Although strategies are developed based on market analysis, you should also rely on historical data. By writing down your trading experiences, it will be easier for you to review the data and predict how a trade might work out.
We have witnessed many traders go into trading without a solid plan. As a result, they end up with losses that trigger their emotions and affect decisions. For this reason, it is crucial that you write your trading plan in your journal and be disciplined to stick to it. Never be tempted to make an unexpected move, even if it’s tempting. In trading, discipline is one of the key elements in executing trades successfully.
A trading journal can work as a platform to vent out your trading frustrations during the days you experience losses. Note that you need to know how to handle your emotions even after you have earned a substantial amount of profits. Writing down your feelings and experience will make it easier for you to prepare yourself mentally and emotionally every time you plan to trade.
As mentioned earlier, trading journals will help you identify areas that bring out the best in you and those that require improvement. However, you must note down every move you make trading various assets to easily identify your strengths and weaknesses. As a result, it will be easier for you to improve your skills by being accountable and incorporating what you have learned in your upcoming trades.
Making use of data in a trading journal encourages performance growth. For example, you can decide to always write down all the information from your market analysis, examine your performance once a trade is closed, and focus on making better moves during the upcoming session. Simply put, a trading session will give you a clear insight into your overall performance, thus boosting performance growth when fully utilised.
Even though traders are driven by profits, it is crucial that you become skilful and independent. To do so, we encourage you to keep all your trading records in a journal, whether it’s an excel, Google sheet, trading diary app, or a paper trade journal. Then, use the data you gather as a reference when creating a trading strategy. As a result, you will see that some patterns keep recurring, and you can easily identify your weaknesses, thus improving. Not only will you be able to maximise your potential, but trading will become a fun activity.