Lesson 1: Importance of Trading Journal

Journaling is an essential trading strategy if you aim to be on track to market success. This practice is not just a beginner thing; even professional traders keep a journal to improve themselves.   

A trading journal is like your grade school diaries; the only difference is you keep your past trading performance here and not your rants (well, you still can, but more on trade-rants).  

With a trading journal, you can measure, track, and be in a constant loop of improvement. 

Lesson Highlights

• A trading journal is essential in improving a trader’s trading style and system because it references past performance.
• Keeping a trading journal is important because it allows traders to develop strategies, manage risks, and control emotions.
• Journaling involves keeping a data entry and a written entry. Data entry includes trade setups, assets, entry/exit points, and profit/loss. Written entry consists of the trader’s thought process before, during, and after the trade.

What Is a Trading Journal? 

In the world of financial markets, profitable traders are the most disciplined traders. One way to build that discipline is by keeping a trading journal.  

Using a trading journal helps you refine your trading system and methods because you see your strengths and weaknesses in trade. As cliche as it sounds, knowing your lapses is the ultimate tool for self-improvement because you have the means to reflect. 

Also, if you have a trading journal, you can master your trading psychology. If you keep a trading journal, you most likely see a pattern of how your emotion affects your market behavior.  

This way, you're in touch with how you behave before, during, and after every trade. You can identify what emotion hinders your success, and you have the power to avoid it. 

Note: Forex brokers often provide performance logs. However, those may not be enough to keep yourself on track to success, so maintain a trading journal by yourself.  

How To Use Trading Journal? 

Trading journals wouldn't require you to spend any dime just to use one. There are tons of trading journals on the internet that are free for you to use. 

However, it'll be your asset if you know how to make one from scratch. Here's what you need to have: 

1. Data Entry: Google Sheets, Microsoft Excel, or a planner.  
2. Written Entry: Google Docs, Microsoft Word, or a notebook.  

After you have these ready, you must finalize what data you need to record every time you open a trade. Ensure that you're consistent with your data and entries to maximize the potential of your journal.  

For your reference, here are the common data to help you in your entry: 

For your written entry, you should always include your thoughts, ideas, and concerns on every trade. Remember, make it your diary to have a reference for identifying your trade patterns.  

When you enter the market, it's inevitable for you to have an overwhelming influx of popping ideas and emotions. Keeping a record of each would help you spot any information that can aid or hinder your trading success. 

Why You Should Use One? 

As I've said, using a trading journal is one effective way to profit from the market. With trading journal, you can enrich your trading skill, set realistic goals, manage emotions, and ultimately succeed in the market. 

1. Strategy Development 

A well-maintained trading journal will provide you with all the necessary performance data. Essentially, it shows you the good and the bad of your trade.  

With a trading journal, you get to which strategy is performing well and which one has lapses. Through this, you can develop your strategy even further to improve your market performance.  

To effectively develop strategies with trading journal, you must provide the following data on your entry: 

• Consistent Entry and Exit Criteria 
• Detailed Trade Descriptions 
• Clear Chart Annotations 
• Trade Outcome Analysis 

2. Risk Management 

Having a sound risk management technique is crucial in the high-stake world of forex trading. Remember, the market is volatile; which present opened forex traders to significant investment risks.  

With a trading journal, you get to have a clear vision of your past trades' outcomes and assess your risk appetite.  

These data are essential to create, monitor, and develop an appropriate risk management technique.  

• Risk Appetite: Assess your comfortability with various risk levels. You get to see whether your appetite is conservative or aggressive, and factor how your appetite influences your decision-making. 
• Risk Exposure: Assess whether your risk management techniques are effective in controlling risk. In case of ineffective techniques, you can adjust as needed to align with the market.  

3. Keeping Emotion in Check 

Forex trading can be emotional, especially for traders who failed to master their trading psychology. When your emotions take the best of you, your trade surely suffers.  

But with a trading journal, you get to monitor your emotions and how these emotions trigger your market actions. The most common emotions you need to lookout for are: 

• Fear: This emotion can hinder you from entering a trade due to the fear of market risks. This could potentially remove you from the potential profitable opportunities.  
• Panic: This emotion can trigger you to exit your buy position earlier than planned. Like fear, this limits your profit opportunities.  
• Excitement: This emotion can cost you investment losses by entering a trade without sound reason; just pure excitement of profiting from the market.   
• Greed: This emotion may lead you to rapid investment or profit losses because greedy traders tend to keep the position longer than planned.  

In this lesson, you learn the importance of keeping a trading journal to instill discipline in your trading activities. As you hop onto the next lesson, you'll know the five essential things you must always include in your journal entry.