One of the most important trading tools of successful traders is a trading journal. So, what is a trading journal and why do you need one? Here is a quick overview.
What is a Trading Journal?
Many traders typically forget about their trades soon after they close it. They simply move on to the next trade and completely avoid learning from what went right or wrong.
A trading journal is the best solution for this scenario. It includes things like
- The prices during the entry and exit of your trades.
- The profits and losses of each trade made.
- Observations regarding the market and its trend.
- Missed opportunities and trading mistakes done.
- Your emotional psychology before, during, and after the trade.
- The available buying power and margin usage.
- The statistics of your performance.
- Trade management rules for your trades.
- The planned entry and exit levels for the trade.
- Position size and potential trading area.
- Stop loss levels for every trade
- Entry and exit criteria for the chosen trades
Why Should You Keep a Trading Journal?
Keeping a trading journal gives you many advantages
- Religiously maintaining a trading journal helps you become aware of your trading style and methodologies.
- A trading journal helps you to track the progress of the goals that you have set in your Trading Plan. Depending on how much closer you are to your immediate and future goals, your trading plan can also be updated.
- A trading journal helps you to identify the bottlenecks in your trading strategies and aid in refining those strategies. For instance, with a trading journal, you can identify which stock or currency pair was most profitable, and during which timeframe.
- A trading journal helps you to plan your trades better as it helps in identifying your risk appetite and keeps track of your available margins. For example, it can help you identify the types of news events that should be avoided, how much less or more can be risked per trade, etc.
- As trading journals give a historical perspective of your trades, they help in identifying which style of trading resulted in best profits for you. For instance, was the market trending market or a range-bound market? These small but crucial data can then be used for planning your future trades in order to maximize your profits.
- Journaling helps you to identify whether you are able to handle pressure and perform well in the stock market.
- Maintaining a trading journal helps build discipline.
Even though keeping a journal appears to be a time-consuming and boring task, you can learn you best trading lessons from it. By simply reviewing the trades and analyzing where things went right or wrong, you would be able to learn quite a deal more than just attending seminars or reading a book.
By maintaining a trading journal, you will be able to analyze your performance and behavior from your trading data. Then you go about making changes to improve your trading results and get a higher win rate.