What Is a Trading Journal and How to Use One
Trading journals have the ability to provide traders with a great deal of useful information, and they are an integral part of the trading plans of most professional traders. There are numerous factors that are essential to be aware of when building a profitable trading strategy; such factors include planning futures trades, documenting existing positions, and recording any emotions that may arise.
To succeed in the markets, every trader needs to be aware of how to create and use a trading journal. The lack of it could easily lead to the trader loosing track of the winning and losing positions. Even worse, they might lose their entire account in one go.
What is a trading journal?
Trading journals are documents that contain all the steps you take on a daily basis as a trader, including strategy development, risk management, psychology, and others. It is easy to create and use a trading journal, but it is extremely effective if it is done correctly. While on the one hand, this can be a valuable insight that can prevent your account from blowing up, on the other hand, it can also be the reason why your account goes to the moon.
In addition to these reasons, keeping a trading journal is important for several reasons, including:
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It keeps you accountable and makes you more responsible.
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It encourages you to be more disciplined and consistent.
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It allows you to find profitable trading strategies when you need them most.
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It documents your weaknesses and strengths.
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Therefore, it leads you to be very careful when analyzing potential trades.
A successful trader is one who plans all of his trades meticulously, collects statistics of his trading performance, and documents his successes and failures along the way. It is important to keep a trading journal and use it in the most effective manner as a trader to become successful despite the market conditions.
How to create a trading journal
The trading journal can be customized in a variety of ways to meet your trading needs and fits into your trading style. You will be all set as long as you have a good place to plan and document your trading activities.
In order to create a trading journal, you need a spreadsheet (e.g., Google Sheets, Microsoft Excel) as well as a document (e.g., Google Docs, Microsoft Word). Using these, you will both record details of your specific trades and record your thoughts about them. Alternatively, if you would prefer, the written document can be included as a second tab in the spreadsheet.
As a second step in successful trading, you will need to understand what you'll be recording daily in order for your trading journal to be as effective as possible. There are several examples of trading journals that you can find on the internet. In spite of this, your spreadsheet should have columns related to each of the trades in your spreadsheet. Some examples are as follows:
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Entry date
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Exit date
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Symbol
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Direction (long/short)
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Entry price
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Position size
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Notional value
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Stop loss
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Take profit
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Exit price
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Trading fees
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Profit/Loss (P&L)
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Profit/Loss percentage (P&L %)
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Notes
Furthermore, some traders may also include a display of the time frame and a screenshot of the setup, as well as anything else that they believe is pertinent. Overall, traders should use the information to their advantage. You should include a section for each day in your written document (or on a separate tab) where you can organize all your thoughts and ideas.
It is through the written document that a trader is able to display their creativity, while a spreadsheet is used to determine the profitability of their creativity. Using both is extremely beneficial when developing a trading journal.
Setting up a trading journal is actually rather easy once you understand how it works. Using a trading journal is something you'll need to become proficient at over the course of your trading career. As long as you have a thorough knowledge of the fundamentals, you will be able to use your trading journal effectively in no time.
How to use a trading journal
The thing about creating a trading journal is that you can use it to build your trading system. However, you can also use it to learn more about how you can implement the knowledge from it into your trading system. By using trade journals in an effective way, an unprofitable trader can be turned into a profitable one. A good reason to enter into any trade is something that needs to be considered before you enter into it. The written document you created can help you in this regard.
If you look at the market every day, you will have thoughts popping into your head, and feelings will flow through your body. Write down all your thoughts and feelings so you will be able to detect anything that could either help or hinder the performance of your trading. Market behavior could be defined as general behavior, past trades, current trades, and potential trades.
You will also use your written document to argue whether a specific idea you have is a good trade idea or not. To identify each trade idea's strengths and weaknesses, you must turn them upside down and inside out, which should enable you to spot their strengths and weaknesses.
Once you have written down all your thoughts and emotions, the next step is to open your spreadsheet. As opposed to your written document, your spreadsheet serves as more of a logical space than a creative one. You will need to record all the trades you make on this page, so it is very important that you keep it neatly organized and up-to-date.
It is important that you measure your successes and failures accurately in order to achieve a successful trading journal. When you keep your spreadsheet, you should ensure you keep accurate records so that you are able to determine if the ideas that you came up with in your written document will prove profitable or not. It is a good habit to get into the habit of recording your trades the moment after you execute them. In that case, they will still be fresh in your mind, and you will save time in the future.
In addition to reviewing your trading journal spreadsheet every single day, you should make it a habit to keep a trading journal spreadsheet. Thus, you will be able to get a birds-eye view of your portfolio of trades, allowing you to determine how much exposure you have and whether or not there is room for entering more trades.