Isn't making money the whole point of trading, so why waste time keeping a forex trading journal? Shouldn't the focus be on strategy, money management, and profit-making? And, what is its purpose anyway? Well, the answers to those questions are in this article plus some more if you manage to stick through. You'll also discover how you can easily design one by learning the necessary components of an insightful trading journal.
What is the purpose of a trading journal?
If you think about it, the purpose of a trading journal is simple: to provide a way to reflect. A concise record of past events gives you insight into what had transpired and how you reacted to it. And, once those data are in your hands, you can mainly utilize them for strategy statistics, overall performance statistics, and mistake prevention.
With more experience, you’ll come to know that a single tactic doesn’t apply to every market condition. Every strategy must have records of its performance so you can assess its viability — because even an adequately backtested trading system may falter in a changing market.
For example, you have a combination of indicators that have worked well in the past five months, but the trading results are dismal in the current month.
A record of trades taken will give you insight as to what could’ve been straining your technical strategy’s performance and how you can forge ahead with it.
This is mostly statistics of how you performed in a particular period.
You might argue that the overall stats are already generated by your broker, and it’s time-consuming and perhaps redundant to reproduce available stats.
However, the level of detail your broker offers with the daily and monthly trading stats lack the most critical component of a trading journal: notes.
Without ancillary notes for each trade, you forget your rationale for taking them in the first place.
For instance, you saw a bullish engulfing pattern on the EUR/USD daily chart, and that triggered you to place a buy order after the next day of the candle formation.
But your trade didn’t go exactly as planned as you got stopped out even before the day concluded because the candle after the pattern was full-on bearish.
Now, the absence of notes on the trading stats your brokers sends out will not provide you with such details; you will only see numbers without any meaning behind them.
Preventing mistakes is practically conjoined with strategy and overall performance stats. Since your notes correspond to each trade, you’ll know if you had followed your trading or strategy rules to a tee.
You can inspect your losing trades and winning trades for one particular strategy and assess each of them for singularity.
If some of those losers resulted from deviating your rules, then it gives you room in preventing the same mistake from reoccurring.
What information should be in your trading journal?
1. Date and Time
This is automatic when creating a trading journal. Remember that the time for closing should be recorded to know how long you’ve kept the trade in play.
2. Trading Strategy
As discussed earlier, the strategy you use should be recorded in your trading journal. Also, you can keep a journal for each strategy if you want a log of all the trades you’ve taken using it. The reason for doing this is to understand your tactic better — to get to know the numbers even more.
3. Traded Asset
Indicate the asset you traded either through a new column or along with the name of your trading strategy (e.g. moving average crossovers on the EUR/USD).
4. Type of Transaction
You should indicate whether it was a BUY or a SELL.
You should also note down the price you entered and exited. Once again, this may be provided by your broker but recording this yourself will lead to the last information needed in your journal, which is net pips.
6. Net Pips
So, after recording the prices, subtract the entry price to the exit price to get the number of pips gained or lost. Measuring the pips allows you to keep a proper method of scoring your strategy as opposed to relying on just the dollar figure.
Forex Trading Journal Excel Template
You can piece all the above information together in excel with the addition of a few more details like a calculation of percentage change, the balance after each trade and the pips’ dollar value that was gained or lost per trade.
Here is our sample trading journal template in Excel.
Intellinvestors' Forex Trading Journal
Click the download button to take you to our free excel template sign up page.
All you have to do with this template is type your starting account balance, date, time, name of your trading strategy, buy/sell, entry and exit price, and the number of units traded. The second sheet is for writing down your notes.
Things to Remember
And finally, before you begin journalizing your trades, here are three things to keep in mind:
1. It should not take more time than actual trading.
You should remember that creating a journal of your trades is to improve your trading by carefully analyzing the numbers behind your performance. If the majority of your time is slowly being consumed by journalizing, then that’s not going to help you improve your results.
2. The purpose is to supplement your analysis.
Your journal is just there as a supplementary analysis. You should prioritize what will actually be of good use to you, so if journalizing doesn’t help at all then don’t do it.
3. The journal is not a task.
A journal doesn’t have to be as well-detailed as you imagine — scribbles of your trades on a notebook is good enough. But what’s necessary, as stated earlier, is the rationale and the notes you have for each trade.
So, there you have it.
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