Forex trading journal - Why is it so important?
Before we can answer the question why a trading journal is essential to your success in trading, we should first briefly explain what a trading journal is.
What is a trading journal?
A forex trading journal is a trading log that helps you to keep a log of your trading activities. A forex trading journal might often be frowned upon by some traders who think that it is extra and unnecessary work.
However, the facts show otherwise. Successful traders keep a trading log in order to help them to keep a tracking of their trading success and to maintain the trading routine and guidelines. The benefits of using a forex trading journal far outweighs the work involved.
Yes, a forex trading journal means additional work. But in the long term, once you have enough data, you would be surprised to notice the things that your trading that you would have otherwise missed.
One might argue that back testing their trading strategies is more than enough. However, the markets are not binary. Therefore,
there is a great chance that a forex trading journal will give you the insights that you would have otherwise missed.
Unlike other methods, a forex trading journal gives you a complete 360 degree view of your trading activity. It doesn’t just rely on your trading strategy but also other aspects such as risk management, your ability to stick to a trading plan, the discipline when to stay off the markets and so on.
At the end, a forex trading journal will certainly enhance your trading skills and will help to make you become a better trader.
However, everything needs to start from somewhere. A great resource is the forex trading journal excel template that you can download. This will help you to get started and build the habit of maintaining a trading log at all times.
There are a number of ways you can utilize the information from a trading journal to enhance your trading skills. It allows you to pinpoint the aspects where you need to work more. This could be things like your lack of discipline, or getting too emotional about the markets, or even aspects such as relying too much only on technical indicators rather than the fundamentals and so on.
Why should you maintain a trading journal?
A trading journal is a log book of all your trading activity. This is something that every serious trader maintains. If you wish to be successful trading forex, then a trading journal is an essential tool that every successful trader must have.
The benefits of maintaining a trading journal cannot directly be quantified. However, over a period of time, you can look back at your trading journal to understand some aspects of your trading that you would miss otherwise.
For many traders, maintaining a trading journal is tiresome. But, make no excuses and do not underestimate that power from a maintaining a trading journal.
Traders might already know that there are three main elements for a successful trading business. These include:
- Developing and executing a trading plan
- Ensuring that you are not risking too much on the trades
- Tweaking or checking your trading system
A trading journal essentially helps you to see how well you stuck to your trading plan and also captures the market movements. In this way, you can identify what conditions made your trade to be a success and what conditions saw your trade resulting in a loss.
The basic objective of a trading journal is that it helps to monitor the performance of your trading system and the trading plan and also shows you if you were able to stick to your trading plan consistently.
Most of the traders tend to focus only on a trading strategy. This can lead to a poor trading performance because the trading strategy is either not executed properly or there was poor risk management in place.
Sometimes, emotions also get in the way of trading. In order to identify your loopholes, a trading plan is a great way to get started to help you stay the course. Most of the times, traders blame their poor performance on their trading strategy.
The truth is that this is just part of the problem. You can face losses not just because of a trading strategy but also for a number of other reasons such as not paying attention to money management, or sticking to the trading plan.
How to maintain a forex trading journal?
A trading journal is like a guide that will keep you disciplined. Of course, the onus lies on the trader themselves to be able to strictly follow the trading plan in the first place. While many traders start out with a trading journal, many fail to continue to maintain a log.
Without a trading log, it can be difficult to identify your potential and the possible areas of improvement that you need. One of the main benefits of a trading journal is that upon analysis you would be able to identify the conditions when you are able to best trade the markets.
Such information can give you the much needed edge that many talk about in the forex markets. However, there are some aspects to bear in mind when it comes to maintaining a trading journal.
For one, you need to be honest and very thorough in maintaining a trading journal. Sometimes, traders lose interest and over a period of time, end up not being detailed in their journal entries.
However, traders need to build a routine. It can be difficult initially to maintain a log, but over time you will get habituated to it.
Writing a trading log becomes second nature and revisiting your trading log will also become a second nature.
For starters, it is always a good idea to enter details into your journal before you being to trade and after you have finished trading. This way, the trading journal will automatically keep you over-trading.
At the same time, you can also quickly analyze your trades and start to build up more on your strengths and work on your weaknesses. A forex trading journal also helps you to get more disciplined over a period of time. You can also start to identify what types of trading works best for you and the technical indicators that you are most comfortable working with.
For some forex traders, a forex trading journal goes a bit further into also keeping a log of their feelings. While this is very subjective, it is up to one’s individual preferences. Keeping a log of emotions is also a good way to understanding your state of mind and how that influences your trading results.
To maintain a forex trading log, the following aspects need to be borne in mind, which we will cover in the next section. Remember that trading is not a one way street. There is more to trading than just a trading strategy or risk management.
What should you write in your forex trading journal?
If you are stuck for ideas on how to get started, you can being by downloading this forex trading journal excel template. The options are open as to what you want to log. It can be anything.
The following aspects are some things to consider when you want to start to maintain a forex trading journal.
- Enter your trading log before you start to trade. You can typically do this when you make your plan on a weekly basis. It is ideal to write down what your perception of the market is. A combination of technical and fundamental factors are a great way to get a full context of the market. You should also mention your entry price, target price and stop loss price with explanations for each. When you look at a macro level, this can be a great way to stay on top of the markets.
- Once trading resumes, if you are like most traders, adjusting your stops, then you should also write it down. This will be a great way to understanding how many of your trades are trading risk free when you trail your stops to the break even level. Doing this will tell you how well you are managing your risk. Of course, it goes without saying that you should also focus on your risk management. Mentioning how much of money you are risking, the trading lots you are trading can give valuable insights at a later point in time.
- You can also jot down your emotions. Writing down things such as “I am confident that this trade will be a success because of so and so factors…” is a good way to also keep a log of your emotions before and after trading.
- Once the trade is closed (regardless of whether it was a profit or a loss), you should write down the details. Keeping a log of things such as why a trade failed or why a trade was successful can be a good way to understanding how well your trading strategy is working and most importantly, your trading bias too. By doing this, you will also start to realise if you are respecting your trading strategy and trading according to the rules.
- You also need to take a screenshot of the charts. This is most vital as taking screenshots before and after you trade is a great way to see how price action evolved. You can then compare the price action to your trading logs and see whether your bias was correct or if the markets proved you wrong.
- Another benefit is that when you keep a log of the screenshots, it can also help you to gain the confidence. For example, if you are trading with chart patterns, then keeping an entry with the tag or keyword head and shoulders pattern will at a later stage show you how well the pattern has fared and whether there is room for improvement.
- A trading log will also help you to identify if you need to re-visit your concept of setting your target level and stop losses. Sometimes, traders do take profits, but there is room for price to rally more. This leads to lost profits. A trading log will help you to reevaluate your trading strategy and fine tune your entry, target and stop loss levels with ease.
Forex trading journal - Conclusion
In conclusion, maintaining a forex trading journal is an essential aspect to your trading success. If you are stuck for ideas, you can download this forex trading journal excel template. The excel template allows you to get started to keeping a trading log.
There are no books, or mentors that can show you how to really be successful with forex trading. If you are already trading but haven’t started to maintain a trading journal, then now is the time. A good forex trading journal will eventually become like your go-to guide.
When you see a potential trading opportunity, over a period of time, you can automatically start to identify potential trading set ups. A forex trading journal will help you to become more professional in your trading.
This can be a great progression in your trading journey. It will help you build your skills further and will make you more confident when trading the markets.
Most importantly, a trading journal will keep you from overtrading. It will also help you to gain the market knowledge and will allow you to get yo know your trading system more intimately. While most traders often make use of back testing tools and other measures to compare how well they have traded, for the most part, a trading journal is a great alternative and a practical way to understand your trading strategy and money management rules.
Maintaining a forex trading journal can be a bit tedious at first. However, over a period of time you will start to notice the benefits of this. As long as you are true to yourself and maintain the discipline to log all your trades, you can see yourself fast tracking to success when you start to maintain a forex trading journal.
To get started, download the excel trading journal template from here.