In order to become a profitable trader, you need to act like a professional. Most trading desks around the world demand that their traders keep some type of journal, or at the very least notes on each trade. These notes must explain what they are doing, the set up, and the results of each trade.
The act of keeping a journal is probably one of the main things that I have seen separate amateur from professional traders. Granted, the journal itself doesn’t contribute to your profit and loss statement directly, but over the longer-term it does make a difference. This allows you to see what your thought process was and start to see if you can pick up a pattern. This is especially important if you start to see a pattern with trades that ended profitably. This shows you where you should be focusing your attention, and the type of trades that you should be looking for to increase the value of your account.
Things you should be paying attention to
There’s a whole list of things that you should be writing down in your journal, some of which include the basics: things such as the entry price, exit price, time of day, and of course the financial instrument that you are trading. I recommend paying attention to the size of your position as well. However, there are some less obvious things that you should record as well.
One of the points to keep in your trade journal is the reason you got involved, not only from a technical perspective, but the overall attitude of the markets. For example, if you are buying the EUR/USD pair, you should keep and I and record write down in your journal how the US dollar is doing overall. Is it strong? Is it weak? Is it mixed against most other major currencies?
It was that simple step that led me to understand correlation through currencies when I was a new trader. I found that I was trading against the overall attitude of the dollar and losing money as a result. Even if the technical setup looked good in the pair I was trading, quite often if I looked around at the other major currency pairs, I would see that the dollar was moving in the opposite direction. Sometimes it’s just important to take a step back and look at the bigger picture to see things in a new (and important) way.
Another thing to record in your trade journal is how you feel psychologically during the trade. If you start to notice that many of your trades make you uncomfortable, then it should be apparent to you that you either didn’t take the right set up, don’t trust your system, or most likely have far too much leverage on. Your position size might be a bit too large for your comfort, and therefore by writing this down you start to get a feel for what your position size comfort is. With this self-knowledge, you can plan your trades better and stick to the plan better as well
Write it down
Studies show that if you write down something you are much more likely to remember it than you are if you type it. Today, writing things by hand may seem a bit outdated or even irrelevant, I have found that I do, in fact, remember things better when I write them down by hand. I believe that the act of writing down your trades and all of the factors involve also slows you down, something that I have found to be extraordinarily positive to the trading results that I have seen. Not only does it get you thinking about the reasons you take the trade, but it also gets you to slow down your trades, which can lead to more positive results in the end. Remember, one good trade during the day can be worth more than five poor ones.
Each journal will look different
Your journal will not be identical to those of other traders, and that’s ok. Over time you’ll find out what details are most important in your trade journal, and you’ll keep those exclusively. If you’re trading someone else’s money you may also be required to record information that you find less important, but that’s ok – it’s better to have more details than less, as you never know when this information will come in handy to provide a new perspective.
Journals will also look different because of the differing psychology that you see between people. Understand that it’s okay to be upset about a result or a life event but write down how you are feeling and be brutally honest so that you can address any deficiencies, be it psychologically or technically. This is a market that is very difficult to get through with positive expectation, so every little bit of insight can be extremely valuable. Quite frankly, if you can’t be bothered to write down why and how you took the trade, is most likely that you don’t have the wherewithal or the true passion it takes to be successful at trading.