What is a Trading Journal?
A trading journal is a tool traders use to assess their trading performance. It is a great tool to analyze trading strategies and master trading psychology. Tracking your trades will improve your trading significantly. The most effective way to track your trades is by using a trading journal.
A trading journal can take many forms, meaning that the style of the journal will depend on the trader and what they are looking to track.
Most commonly, trading journals are kept in the same way you would expect a journal or diary to be kept. The difference is that your journal will contain a lot more detail. You will be logging a lot of data.
Every trading journal will contain your entire trade history. You must log every trade. Logging every trade will be the foundation for your journal. All information in your journal revolves around your trades.
How to Keep a Trading Journal
If you are like me, then you like the idea of keeping a trading journal yourself. Not only will you control the type of information that goes into it, but it will be free. All you need is excel or a notebook.
Regardless of how you intend to keep your journal, these are the key things you must include in your trading journal:
- Date/time of trade
- Entry price
- Profit target
- Stop-loss
- Risk/reward ratio
- Exit price
- Trading strategy used
These are just just the basics. To have a trading journal that will really enhance your trading- you need to include the following:
- A snapshot of the chart
- Your trading plan
- Market conditions
Why You Must Journal The Specifics Of Your Trades
Let me explain why you must include these in your journal. Remember, in order to use your journal to enhance your trading, you must include as much data as you can to analyze.
Act the same way scientists do- keep detailed notes of your trades (experiments), that way you can review your them to find out what improves your trading and what harms your trading.
A Snapshot of the Chart
Always include a snapshot of your chart, even if you are creating your trading journal by hand. Take a snapshot of your chart so that you can see the whole trade and save it on your phone or computer. Make sure that the snapshot also includes the area before and after the trade.
To take it a step further, save your snapshot with all of your annotations on the chart.
You do this so that reviewing your journal will give you more insight into what you were thinking throughout the whole process. We have a tendency to only remember events that hold emotional significance. That is why we often only remember the good and bad parts of a trade instead of the whole event. Analyzing the snapshot can let you see the whole event so you can see what influences your trading,
For example, maybe you will notice certain price action patterns before a trade that influence your confidence.
Reviewing snapshots of you charts will help you recognize price action patterns that can impact your trading performance.
Your Trading Plan
Writing your trading plan is similar to writing your trading strategy. You want to record your entire trading plan step-by-step. This will allow you to gauge your consistency.
When you are reviewing your trading journal, look to see if you are following every step of your trading plan. If you did not, what did you leave out or what did you add? Did these changes improve your win rate? Or did these changes decrease your win rate?
Those are very important questions to ask yourself when reviewing your journal. It can help you recognize if your trading plan is right for you. Sometimes we think our trading plan works for us even though it does not. A journal will make it very clear for you.
In fact, sometimes accidentally changing your trading plan will work out for you. In the case that you accidentally add a step or forget one, and your win rate increases, maybe you should consider including that accident in you trading plan in the future.
Market Conditions
Sometimes, we beat ourselves up over bad trading days. We get so caught up in our bad trades that we neglect that the overall market sentiment was poor. Trading psychology tells us that this is the perfect way to ruin our confidence as traders.
This is why recording market conditions is very important.
Even if you don’t immediately recognize that your bad trades were caused by poor market sentiment, you will eventually realize it when reviewing your journal. You will master trading psychology and maintain your confidence as a trader once you realize that your bad trades were not your fault.
The reverse is also true.
You do not want to get over-confident in your trading if your trades got a boost from great market sentiment. Don’t get me wrong, your trade could have been good to begin with, but the results might seem better than what they normally would be.
Recording and reviewing market conditions in your journal will help you see if your trading results were influenced by market conditions. It is also important to keep such trades out of your win rate calculations.
Benefits of Using a Trading Journal
Using a journal is usually overlooked by beginning traders because they do not understand the benefits. Here are the main benefits of keeping a trading journal:
- Tracking Trading Performance
- Improving Trading Strategies
- Improving Risk Management
- Mastering Trading Psychology
There are some things you will want to look for to see if your trades are consistent. You will want to make sure that you are:
- Following your trading plan
- Sticking to one trading strategy
- Managing risk
- Keeping a clear head
Tracking Trading Performance
Tracking your trading performance is the only way to tell if you are improving as a trader. That’s right, winning some trades is not a good way to gauge your success as a trader.
Traders gauge their trading performance and success by looking at their consistency.
How do you gauge your trading consistency? You gauge your consistency by analyzing all of your trades in your trading journal and look for specific things.
Reviewing your journal will show you your strengths and weakness in these areas. Once you have your weak areas identified, you can work to strengthen them. Each time you review your journal, you will be able to see if you are making progress in strengthening your weaknesses.
Improving Trading Strategies
Have you ever used a trading strategy that you have researched extensively, but just cannot seem to execute it properly? You’re not alone. Some trading strategies need to be tweaked to work in certain market conditions. There are also cases where the strategy needs to be tweaked to work with a certain trader.
Time to become a scientific researcher! Seriously! The best way to improve your trading strategy is to dissect it, tweak individual parts, and record trading data. You are using your trading journal to record and test your experiment.
This is how it works:
- Identify all of the rules for your strategy and write them down
- Make some trades and record them
- Compute your win rate (wins/total number of trades)
- Alter a step or two of your strategy and write them down (you could also add some new steps)
- Make some trades and record them
- Compute your win rate again
- Compare the two win rates to see if your win rate increased or decreased
Do you see how this relates to conducting an experiment? You create a hypothesis, you create your control groups, you run your tests, and then you analyze your results.
Using a trading journal is the best way to improve your trading strategies.
Improving Risk Management
Risk management gets taken to a whole new level when you use a trading journal. When you hear risk management, you probably think about calculating risk/reward ratios and calculating your position size based on what you are willing to lose.
Well a trading journal does not necessarily change your risk management strategy. Rather, you use your journal to make sure you are following your risk management strategy.
When you are reviewing your journal, you may notice that you are taking unnecessary risk in certain situations.
For example, you may see that your position sizes are bigger than they should be when you are confident. You would want to correct this because your position sizes should be based on how much you are willing to lose, not how confident you are that you won’t lose.
Mastering Trading Psychology
Taking detailed notes of your thoughts and emotions for trades you take will allow you to master trading psychology. Reflecting on your trades will allow you to spot patterns in your thoughts and emotions.
For example, you may notice that you are way more confident and take riskier trades when market sentiment is great. Maybe the opposite is also true for you- you get scared and close good positions when market sentiment is poor.
In the moment, you are often unaware of how your trading is affected by poor trading psychology. Reviewing your journal will allow you to spot triggers that affect your trading psychology.
If you can identify the triggers that sway your trading, you can get straight to work to correct them.
Best Free Trading Journals Online
You do not need to create and manage a trading journal yourself. In the case that you are not tech savvy or do not want to do everything by hand, there are free trading journals online.
Here are my two favorite free trading journals online:
Tradervue
Tradervue may not have the best looking website or design, but do not let that fool you. Tradervue’s online trading journal will make recording your trades a breeze. This is because they have an incredible feature that allows you to directly import your trades from most brokers. Importing your trades will save you so much time. Another cool feature is that charts are automatically annotated to show your entries and exits.
The only downside is that Tradervue only allows you to record 100 trades per month for free. After that, it costs $29 per month.
StockTrader.com Free Trading Journal
I like StockTrader.com’s free trading journal because it sets the framework for you. It is a well put together platform for you to enter your trades. That’s right, this platform does not offer the ability to import your trades from your broker. That is okay though; you want to do it by yourself so you make sure you don’t miss any important details.
It is nice to have a template for creating a journal. Rather than having to create your own spreadsheet or find an effective way to hand-write your journal, you can visit their platform and use their pre-designed template.
Remember This One Thing
No matter how you go about keeping your trading journal, the important thing is that you’re doing it. This is the only true way to measure your success as a trader.
You will not improve your trading and become a successful trader without it. You will be stuck in the trial and error phase of trading for a long time if you do not follow these simple steps.
Make sure to follow all of the steps in this ultimate guide to keeping a trading journal and you will see rapid improvements in your trading. Review your journal every day and look for ways that you can improve as a trader.
How do you keep your trading journal? Do you keep it the same way that I have outlined? Are there any tips that I did not add? Make sure to let me know!