THE IMPORTANCE OF KEEPING A TRADING JOURNAL
In today’s post we are going to discuss the importance of keeping a trading journal. A trading journal is a critical component to your overall trading plan and future success.
In any endeavor that you have ever gone through, you can’t expect to keep all the information in your head. Take going to university, you cannot expect to get good grades unless you retain the information you hear on a day-to-day basis. Inevitably you will write some things down, refer back to those notes and then learn from them.
The same is true for trading. In order to consistently grow as a trader you must have something to measure your progress and keep you on track. This is what a trading journal does. It is a tool that allows you to document every single trade and action you take within your trading account. Such as setting take profits, stop losses and trailing stops. The more you measure, the more you can fine-tune your approach and become a better more consistent trader.
In saying this, there are 3 main things that keeping a trading journal can help you with and we are going to discuss them in greater detail below. But to outline them now, the 3 things are REVIEW – LEARN – GROW.
Every successful business keeps documentation of the work that they do. Progress reports are essential to a company’s growth. It gives the company something to measure their performance by and helps them to find holes in their current strategy, make improvements and do better on the next project.
This is exactly how you should look at keeping a trading journal. It is essentially your report card. You can measure your success and then make improvements. The more in detail you measure your trades, the more in-depth you can fine-tune your approach.
With that beings said the first point we want to touch on is…
REVIEW
By documenting all of the details of your trades you are able to do an in-depth review of the trades that you take. Things to keep track of are
entry date
exit date
entry price
exit price
trade management details
slippage
commission
strategy
profit/loss
original target
notes
Of course, do not be limited to this list but these are just some ideas that can get you started on the right foot. By consistently reviewing your trades you are able to see where you may be falling short with your trades.
For example, if you keep track of your original take profit levels and where you actually exited the trade, you may find through a careful review that you are closing out positions early that ended up going to your original take profit. This can be very powerful because by simply reviewing all of your trades you are then able to make these changes that can have a huge impact on your results.
Reviewing your trades is essential because by reviewing your trades you become more aware of what your best trading setups look like. When you know what your best setups look like you are able to execute the trades easily and effortlessly.
Other important details to include in your trading journal are screenshots of each trade and detailed notes on why you executed the trade, what the setup looked like at the time, why you managed the trade in the way that you did, and why your take profit and stop loss levels were set in the way that they were. These notes are essential to fine-tuning your approach. You may find after a large enough sample size that you are not great at executing a particular strategy. You can than make the decision to not trade the strategy entirely or fine-tune it in a way that suits your trading style.
LEARN
The only way to learn from your trades is by careful review. After reviewing all of your trades you are than able to pick out similarities and differences between great setups and not-so-great setups. By doing this you can tweak your approach and implement action steps to ensure that you do not make the same mistakes twice. When you see a mistake being made multiple times within you trading journal you can than write that mistake down to ensure that you do not make it again.
For example, “I find that pinbar candles in a down market that close as down candles to not make for great buy signals.” By making these observations in your trading journal you can greatly improve your consistency with executing the same great setups time and time again.
GROW
By carefully reviewing and learning from all of your trades you are able to grow as a trader. Growth only happens by learning from previous experiences and this is exactly what keeping a trading journal allows you to do. You are able to sort through all of your previous trades in an efficient and effective manner. When you identify that you are making the same mistake within your trades you can then put a rule into your trading plan so that you do not make this mistake again. This is how we grow as traders, through careful and consistent review. Keeping a trading journal is an absolute must for all professional traders.