The importance of keeping a forex trading journal

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Updated: 26 November 2020

All progress in life can be traced by looking at the history of a set of actions. When it comes to wanting to learn how to trade CFDs, forex or any of the markets, it is vital to know that progress is the key to successful trading.

Keeping a trading journal is one of the best ways to track not only successes but also failures. By noting all trade actions and outcomes, you will be able to grow as a trader and learn from any mistakes. Besides any major mistakes, you will also be able to recognize small errors that can be avoided, such as the incorrect timing of entry or exit trades.

Even though online trading platforms keep a history of all the trades you’ve made, this will only show the actions and trades and not the methods behind them. These basic recordings may be useful, but they are not sufficient for the thorough study and analysis of your trades.

Upgrading your trade strategies

It should be no secret that solid trading strategies are vital for successful results. It is especially important that traders use a variety of strategies, as no single strategy applies to every trade situation or market condition. In order for these strategies to be successful, they need to be reviewed and adjusted as they are tested. By noting each strategy and when it was used, you can track the outcome, analyze any mistakes, and upgrade the strategy for future trades. It is also beneficial to test several theories and write down each step of the thought and action process. When you neglect to track your strategy implementation and its results, you run the risk of missing many learning opportunities. In turn, your risks become larger and profit is at stake.

Overtrading

Certain strategies, such as scalping, make use of as many as 40 signals per day with multiple positions open. However, this is not common with most normal strategies. If you review your trades and notice a consistent trend of 10 to 15 trades each day, you can classify it as overtrading. Having that many trades open each day deters you from focusing on individual trades and detailed analysis of the market. By checking your trade amounts in a journal over a period of time, you will clearly see whether or not you are overtrading.

Trading platform account history

Factors such as trade types, trade size, traded currency pairs, and opening and closing times should be noted in a trade journal. This can show your personal trade statistics and averages, allowing you to track performance as it happens. This will also allow you to determine which currency pairs are more successful and reveal whether you are better at trading in calm market conditions or volatile conditions. Because the markets depend heavily on time, you can also track which times best suit your trading preferences.

Additional notes

With a trading journal, additional notes are essential to the understanding of each process. By noting the reasons behind certain choices or changes that occurred, it will be easier to spot trends when reviewing your trade history. Any additional information will only prove beneficial when it comes to improving your strategies.

Keeping a trading journal is as simple as it sounds. It can be done physically in a book, as an online document, or even in an Excel spreadsheet. The key information you’ll want to add includes:

  • Date and day of the week
  • Time the trade is opened and closed
  • Currency pair
  • Entry price
  • Stop loss price
  • Take profit price
  • Closing price
  • Position size
  • Strategy
  • Trade type
  • Profit/loss
  • Extra notes

Once you have kept track of your trades over a period of several weeks or more, it is important to review the journal entries. This will allow you to learn which moves were beneficial and which were mistakes and determine how you can improve future trades.

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