Trading Journal: An Explanation of What It Is and How It Can Be Created
What may be found on this page?
- What does it mean to have a trading journal?
- WHY KEEPING A TRADING JOURNAL IS IMPORTANT
- HOW TO GET STARTED WITH A TRADING JOURNAL
- TRADING JOURNAL FILL IN THE BLANKS TEMPLATE
- A BREAKDOWN OF THE TRADING JOURNALS
WHAT DOES IT MEAN TO HAVE A TRADING JOURNAL?
A log that you may use to record the details of your transactions is known as a trading diary, You should keep a trading log just as other traders do so that you may reflect on your past transactions, analyze your performance, and improve, You may assess the areas of your trade that need improvement using journals, They are an efficient method of documenting and organizing information.
WHY KEEPING A TRADING JOURNAL IS IMPORTANT
Some of the primary justifications for maintaining a trading notebook are as follows:
- They assist you in determining the areas of your style that need improvement and those that are already strong.
- Journals have the potential to improve trading consistency.
- You could be more accountable if you maintain a diary.
- You will be able to choose the most effective trading technique with the aid of the diary.
The improvement of a trading strategy may be accomplished in a manner that is uncomplicated and, at the same time, very successful by keeping a diary. A trading plan is a collection of rules and guidelines that you will follow in your trading. This set of rules and guidelines should incorporate aspects of trading strategy, risk management, and trader psychology.
HOW TO GET STARTED WITH A TRADING JOURNAL
It is easy to start a trading diary, and you may modify one to fit your trading objectives and preferences, The stages that follow serve as an essential guide, which will be discussed in further detail further down:
- You have the option of either a book or a spreadsheet, We strongly suggest making use of a spreadsheet.
- Determine the information that you need to record and write it down, (The transaction date, the underlying asset, the amount of the position, etc.)
- Record your transactions as soon as possible after setting your stop losses and taking winnings.
- After a certain amount of time (daily, monthly, or weekly), gather the data and discuss the transactions.
Step one is to choose either a book or a spreadsheet
Because of the built-in analytical features, using a spreadsheet is highly recommended by our team, These may be useful when considering the transactions, as we will discuss in Step 4.
Step two: is to determine the information that needs to be recorded
These primary criteria will often be included in a trade log in its conventional format:
The standard format provides a straightforward example of a trade journal. It may help you reflect on your transactions, but by adding a few more criteria, we can improve the diary so that it offers much more helpful information.
The following are examples of information that could be helpful to add:
The rationale for the trade might be based on either fundamental or technical analysis, or it could be a mix of the two, When you have completed a sufficient number of deals, you can review this data and determine whether or not the trading activity is meeting your objectives, This may also assist you in determining if you would benefit more from using fundamental or technical analysis as a trading strategy.
Conviction refers to the emotions you have towards the transaction, If you are making the trade based on a technical pattern, and the pattern “checks off” multiple rules, then we may rank the conviction as “high.” If you make the trade based on a fundamental pattern, the conviction can be listed as “low.” Nevertheless, if the pattern or the underlying narrative isn’t apparent, the conviction may be medium or low based on the variables basing the trade, If you write down your conviction, you can determine the percentage of successful transactions corresponding to each level of conviction you have achieved, Considering this might help you decide whether or not you should limit your trading to times when you are confident in your decisions.
Other: In your diary, you may write down everything you choose to be significant enough to write down, When making a deal, some investors also consider how they are feeling emotionally at the time, Put in writing anything you think would be of use to you.
Step three is Immediately after each transaction, record it in your ledger
Get into the practice of writing down the deal’s specifics as soon as it is completed while the information is still crisp in your mind, If you do it this way, you won’t have to stress about trying to recall the motivations for your decision to take the transaction, Be careful to wait to complete this step until you have set your take-profit and stop-loss levels.
Step four is Compile the information and think critically about the transactions
You can assemble the data in your trading diary once a specific time has passed, ideally many months, to have sufficient data.
If you keep a notebook with conviction criteria, you should record the number of successful deals you made while your conviction was high, medium, or low, Once you have all of this information, you can decide whether or not it is worthwhile to trade only when your level of conviction is high.
For instance, if you maintained a high level of confidence in 10 transactions and eight of those trades were successful (take-profits were reached), then the chance of success for your past trades is equal to 80 percent. If you placed 10 transactions with low confidence and only two of those deals were profitable, then the likelihood of being successful is just 20%. As a result, the only time trading is profitable is when your level of conviction is strong.
You can accomplish this with all of the many criteria forms, allowing you to reflect on your trade and improve it.
TRADING JOURNAL FILL IN THE BLANKS TEMPLATE
An example of a template for a trading diary is provided here, and it contains a section on the trading strategy employed as a criterion.
Following our discussion of the many criteria you may choose to include in your journal, the following table demonstrates how you would arrange all of this data if it were to be stored in a spreadsheet format, On page five of our no-cost guide on fostering confidence in trading, you’ll find a template you may use for personal use and download there.
A BREAKDOWN OF THE TRADING JOURNALS
When beginning their trading education, one of the first actions traders should do is start and maintain a trading log, Keeping a record is most important when trying out various trading methods and determining which trading plans are effective for particular traders.
Keeping a trading record is necessary when determining whether an existing trading strategy is profitable, To briefly recap:
- Trading diaries are meant to be used to record your trading activities.
- They facilitate the testing of various trading plans and methods by traders.
- Traders may also benefit from keeping trading notebooks since it helps them identify their trading style’s strengths and limitations.
To add to your knowledge, check out the article “The Number One Mistake Traders Make,” in which we researched hundreds of live transactions and found a startling result.
If you trade forex, you may be interested in reading our article on how to maintain a trading notebook for forex, which includes advice on choosing a journaling approach that is appropriate for you.
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