Much of the trading literature encourages traders to observe the technical side of trading heavily. It’s evident traders have some obsession with looking for the best strategy with high winning percentages, special entry techniques, advanced methods of using indicators, and other things considered the ‘fun part’ of trading.
Ultimately, trading is a business, and like any business, a profitable trader understands the importance of keeping records. Arguably, journaling is not spoken enough in most trading circles, though it might be the unexpected ‘aha moment’ for many.
It’s easy for anyone to remember the most recent position they took and what went wrong, though very rarely will someone recall their last 5, 10, or 20. Without having a record of this information, it becomes impossible to spot any patterns in mistakes and good habits.
Despite brokers providing clients with the transaction history of their positions, this information is only marginally beneficial. A trading journal provides this data in much more technical and actionable detail.
But more importantly, a journal acts like an imaginary mentor coaching the trader by improving their weak points and encouraging them on their strong ones. This article will explore the concept of diarizing or journaling in forex, why it’s necessary, the essential information to include, and the best way of doing this.
What is journaling in forex?
A trading journal is merely a register used for the record-keeping of someone’s positions. This log is a database tool for traders to reflect on their previous trades, improve upon their future ones, and gain an overview of their present and historical performance.
Most traders don’t focus enough on maintaining consistency because of an obsession with short-term results. A journal isn’t only numbers-driven but is crucial for maintaining emotional discipline by ensuring traders stick to their predefined trading plan.
Although such plans provide a set of strict guidelines, a journal acts as an extra confirmation factor before the trader presses that buy or sell button. An excellent journal almost inadvertently instills patience simply because a trader would take time to enter a position into their journal.
Similar to the ‘confirmation factor’ point, a journal prompts traders to really think about what they’re doing beforehand, meaning one is unlikely to act spontaneously.
Lastly, a brilliant journal holds traders accountable for any errors they might commit due to ill discipline.
If one tends to fall victim to a few mistakes, they can easily spot them through their records and correct them quickly. Overall, journaling helps keep performance metrics, maintain discipline, practice patience, and uphold accountability.
The important information to include in a journal
Now that we’ve covered all the key points on the importance of journals, the natural progression is figuring out precisely what should be included.
Here are some of the main metrics:
- The date and time of when a new position has been opened
- The traded pair of the executed order
- The direction of the trade, either buy or sell
- The position size in lots
- The entry price, stop loss, and the exit price
- The final outcome of the trade, including whether it was a loss or profit and how much
Other critical data to include is:
- Reasons for taking the trade: Here, the trader will detail all the factors they usually would look for according to their trading plan. Essentially, one aims to list all the significant checklists to ensure they follow all the necessary guidelines.
This part should also consist of the necessary trade management rules. After a trade has been closed, the trader would revisit this section and see whether they have followed everything according to their trading plan. Should they find any inconsistencies, the journal will guide them on what to correct in their future positions.
Experts also recommend adding screenshots of charts as a visual aid for traders to see their entries and whether they’ve been following them to the tee.
Despite the old-school method of journaling being effective, it is limited by not providing more advanced information. Hence, the next section covers a better approach to keeping a trading journal that is more sophisticated for ensuring better performance.
Best methods of journaling
While specialized journaling software like Edgewonk, Tradervue, and Tradersync are available, most traders still use the typical Excel spreadsheets. Although the latter method is still relatively efficient, it is rather dull, time-consuming, and offers minimal customization.
The advantage of using software boils down to their performance metrics, such as the risk-to-reward ratio, R-multiples, expectancy, drawdown, average loss, and profits, etc.
It takes some knowledge to calculate these statistics using something like Excel, which not everyone has. Fortunately, the software provides this data automatically, which can offer much more depth about someone’s trading strategy.
This information can deliver powerful and actionable insights into a trader’s performance than otherwise. While these journals come at a cost, it may be worth investing in them for those wishing to conduct serious journaling.
The cruciality of journaling in forex cannot be understated. A consistently profitable trader follows a set of unwavering actions every time. Such is the importance of this practice that many experts consider it as one of several reasons the supposed high 95% failure exists.
We should bear in mind not all traders lose money because of risking too much on one or a few positions resulting in an account blow-up (although this is one of the big catalysts).
In other cases, a trader only needs to make a few tweaks, assuming they have a proven strategy and the right experience. More specifically, many find trading difficult due to closing winners too soon, lousy trade management, lack of discipline, and inconsistent money management.
Fortunately, a brilliant journal can solve most of these challenges fairly easily and quickly. By keeping the most accurate records, traders won’t draw misinformed calculations by focusing on the wrong things for their lack of success.