An Intern Learns - Creating and Using a Trading Journal
Welcome back to another part of the Intern Learns series. I’ve recently discussed how to make a trading plan, what decisions this involves and how you can implement this plan yourself. In the blog today I’d like to look at how using a trading journal can really make a big difference to your trading. Many professional traders recommend using this. Especially because it’s often hard to find a mentor to talk to about your trades (especially one that you don’t have to pay for!), and in this way a trading journal can be your own personal coach. All the lessons you learn will be in your journal, and by reflecting on these at a later date you can garner some great knowledge.
Not a lot of people are used to keeping journals, I know I’m certainly not! It’s a lot of work and even when I try, normally after a couple weeks I tend to give it up. However trading gives you the prefect reason to start a journal – recording your findings allow you to learn from your mistakes. It is a lot of work, but the rewards of becoming a great trader are worth it!
‘So what would you record in a trading journal?’ you may be asking – well the answer is everything. A journal needs to record in detail everything that goes on in your head before, during and after a trade. Over time you’ll get better at determining what you’re going to record, like what news events to make note of, which to avoid, how much you risked in your trade and how effective your decisions were. There’s quite a lot you can make note of, so here I’ll break it down to more specifics and then you can then decide which works best for you.
Start with your basic concepts of trading and your motivations for trading. As I’ve mentioned in previous blogs such as how to make a trading plan, you need to determine what kind of trading suits your lifestyle and what reasons you’ve made this decision. Maybe you decide that you want to base your system around a scalping technique, but after a time you realise this simply doesn’t work for you. By reflecting on your journal you can see that maybe you didn’t have the time, or perhaps the stress of constant scalping throughout the day just wasn’t for you.
You also need to make note of any market observations you may have. Looking back on this information will help show you what facts influenced your decisions for that particular trade. For example, which news events sparked your decision to enter a trade, or maybe a specific indicator showed a great entry point and this worked really well. Either way, factors that influenced your trade need to be recorded.
Record the ‘technical’ aspects of your trade such as your entry point and what was the entry trigger. Make note of the potential trading area and what made you decide to go for this area. Did you see any chart patterns that guided this decision? A good technique that I’ve often used is to take a screen shot of the trade as you entered it. Especially in some cases where you might leave a trade over a whole day, by comparing the screenshot to the market at the close of your trade, you can more easily see whether you made the right predictions of the price movement. The main thing to remember is that even if there is a great entry point, with all your indicators pointing in the right direction, make sure you have taken consideration of the area around it and the larger fundamental factors. Bearing this in mind will prevent you getting the shock of the price moving against you.
Once the trade has closed, make a note of this point too. Another screenshot at the end would be useful too and you can compare the whole story of that particular trade at a later time. After your emotions have calmed down a bit you can view the outcome in a more rational state. At this point make a note in your journal about all the mistakes you made or the opportunities you missed. Did you stop your order when you should have let it run, maybe you interpreted your indicators wrong and what looked like an opportunity was actually not one at all. All these things that went wrong are very important to record down, as essentially these are what you will learn form and aim to avoid. It’s also important to look back at your trading plan and ask yourself if you had everything covered. You need to plan for all eventualities. Think about all the things that could happen and plan to ensure they don’t happen again.
The last aspects you need to cover are your trade statistics and a retrospective. With the statistics, this will prove more insightful over time. Record your winnings, the amount of pips you’ve won or lost or anything else that might help you. Over time this paints a broader picture of your trading, showing whether you’ve been successful or not. It might help to exclude unusually large winnings or losing as these might skew the results a little! Lastly have a retrospective on your trades and ask yourself critical questions such as; did you have a sufficient position size or did you risk too much? Were you patient with your trades and follow your system through or did you get nervous and exit early? Were your Take Profit and Stop Losses set at correct levels? Did you monitor the market while you were trading and did new information on price movement confirm or diverge from what you initially thought?
Having a trading journal is really difficult, not because it is hard to do but rather because it takes a lot of discipline to keep it going. A journal is not much good after only one or two days – weeks and months of data will provide a greater basis for you to evaluate your trading. Look at where you have gone wrong and make very specific notes about how you can improve. This will be like having your own personal coach and over time you will see an improvement.