Updated March 2020
Operating in the financial markets will forever remain a learning process.
For that reason, memorising the subtle nuances of each trade is of the utmost importance. This helps recognise mistakes and ultimately mature as traders. How we do this is by maintaining a trading journal.
Keeping a trading journal is akin to an athlete reviewing previous competitions. Too often, small, yet crucial, details are missed when trying to recall from memory.
Recording trades in a systematic fashion may expose strategies or tendencies that lead to improvements.
The Workings of a Trading Journal
Unfortunately, there is no one size fits all concerning the structure of a trading journal. Some prefer to journal trades jotting a few important notes down; others take it further.
While there’s nothing wrong with a minimalist approach, an in-depth profile, including pre-trade analysis, trade management analysis and post-trade analysis is a more desirable method. It’s also beneficial if supported with images.
Pre-Trade Report
This section details the reasoning before entering a trade.
Writing what market conditions were at the time, along with a chart to complement this, captures a complete representation.
Also important in this section is identifying the entry and exit strategy. This should be determined in your trading plan.
For risk, you’ll ask yourself things like whether you’ll trail the position, whether there’s scope to achieve the desired risk/reward, whether nearby levels of support/resistance could hamper the trade, or whether there are any scheduled news events that could rock your position. These are some key questions you need to ask yourself prior to pulling the trigger.
The objective is to try and avoid surprise and plan for every eventuality the market may throw your way.
Trade Management
It is here you note your emotional state during the course of a trade. It is also recommended to supplement this section with in-trade images.
Was the trade executed in accordance with the pre-trade report? Over and over again, traders enter a trade before the entry level is in play, through fear of missing a move. Not only does this distort the initial risk/reward ratio, it’s bad practice. Recording timing, therefore, is important to track your patience.
Other than prematurely entering a trade, observing if you consider deviating from the initial plan once a trade was in motion, or thought of adding additional risk, is a worthwhile note. The information garnered from trades provide an accurate illustration of the strengths and weaknesses of the trader and trader’s methodology. Descriptions of errors and recurring mistakes highlight areas you need to pay heed to.
The best trading gift you can give to yourself in this section is honesty. Be truthful about your emotional perspective during a trade. It will help recognise and overcome trading weaknesses.
Post-Trade Report
Following trade completion, it’s advisable to log the outcome, win or lose. As with the two sections above, adding chart images of the completed trade is beneficial to create a before-and-after scenario.
Was the trading plan followed? If not, what was the reason for abandoning your trading rules? If you committed a recurring mistake, note what your thoughts were and how you can improve on the next trade.
Conclusion
At the end of each trade, save and file it. Once it’s finalised you can review the notes at your convenience.
Why is it many traders do not bother with trading journals?
Without the historical data of past trades, how can you expect to improve? It is a near-impossible feat as our brains can only remember so much.
The above information is, of course, not the be-all and end-all. There are likely other things you can add to your trading journal that may prove beneficial. It’s all down to personal preference.
The key thing is to begin your trading journal today.
