Keeping a record of your actions through proper documentation is an effective way of understanding and analyzing where you stand in the space of financial trade. Just like how a scientist keeps track of his/her research and experiments, the same concept goes for trading as well. However, the surprising thing is that majority of the traders in the market sectors right now are not using trading journals. This is mostly because of the lack of education or awareness behind them.
Having a trading journal can provide traders with a ton of benefits, enabling them to be a step ahead of others, while also keeping track of their own performance. Not only that, but trading journals might also provide to be useful in the case of a legal issue, for which it can be presented as evidence. If you are new to trading journals, this guide will effectively let you gain knowledge about what they are and how they can be used for trading.
About Trading Journals
Each bit of task you perform when trading is recorded inside of a trading journal. A trading journal basically stores information about your trading activities and their results, providing a sort of summarized version of your trading position, however the thing to note is that a trading journal is not a brokerage account statement.
With a trading journal in hand, every single successful trading activity performed follows a certain plan, and the role of the trading journal is to store information about each of the successful/failed trade and the related trading strategy used. Without having to see how the overall market is going, you as a trader can effectively learn about the potential of a future trade, by utilizing the records stored inside of a trading journal.
Creating a trading journal is mostly quite a trivial task, requiring only a couple of tools such as Microsoft Excel and Word, which saves a lot of time instead of searching for more trading journal solutions. Although there are dedicated trading journal solutions on the internet, however majority of the users of trading journals are comfortable with using MS Excel and Word. The utilization of well-organized spreadsheets and note taking applications will assist you in being disciplined and improve your consistency levels in trading.
Even if your trading strategy is a bit uncertain, it is still important to keep a record of all your trading activities. Having that in mind, you can gain knowledge about when situations are bad and why they become like that, providing you a better view on making the right move. Some even say that a trading journal decides your position as a trader, either being successful or falling to the competition.
What to include in a Trading Journal?
In terms of minimum requirements, a trading journal should have a record of your day-to-day profits and losses, including information about the market situation. However, it is advised that a trading journal should be more detailed than this. Your thoughts about your decisions on trades, how that decision worked out if successful and how it can become useful in the coming time.
Small details regarding your entry and exit provide a much clearer view on your trading performance, providing you with a chance to change your trading strategies according to the market conditions. In simpler terms, the more amount of information you store, the more perspective you will gain on whether your trading strategies are working out or not. More details on this are discussed further.
Advantages of using a Trading Journal
Utilizing a trading journal has quite a lot of useful benefits that can help a trader to maintain a good trading plan, which basically includes the rules and guidelines you seek in terms of trading strategies, managing risk levels and trading mindset. Trading journals help you to know about your strengths and weaknesses surrounding your trading activities and record, assisting you in fortifying your next trading strategy and enabling you to make decisions that are better for you.
As an example, using and analyzing the records stored inside of the trading journal, an individual can decide if they want to use crypto derivatives or if they should initiate the process of reinvesting cryptocurrency profits. Decisions made using trading journal are void of any judgmental errors and biased beliefs, providing you protection from unwanted and useless factors having an effect over your trading goals, eliminating the factor of wasting time and resources on useless ideas.
Whether you are a novice or an experienced trader, a trading journal can help you manage your trading strategy effectively, giving you an insight over the next trading strategy you will have to implement in order to keep your presence relevant in the market. Being a successful trader relies on you having a framework that helps you profit and make better strategies. The framework can highlight you level of success in trade and help you to dodge future difficulties in the market.
Novice traders are often misguiding themselves when they only keep focus on the shining rewards. Subsequently, having a good transactional record, you can initiate the use of careless entry points or gain more cryptocurrencies. With a trading plan, you can maintain your focus on your goals and heavily reduce the changes of making an unwise and risky trading decision.
Looking at another example, forex trading is a field which is highly associated with an individual’s mentality. Majority of forex traders are susceptible to negative mental emotions, pushing them to perform useless and careless decisions, leading to performance degradation. Having records in a trading journal lets users learn from their mistakes and put aside their emotions when trading in the market.
As mentioned before, trading journals also helps users be accountable for their actions. Having a properly managed and organized track record can be useful in the case of any legal problems or to find out if your trading career is a hit or miss in general. Having a successful track record can also become a great motivational boost for traders looking to go big in their career, giving them the power and confidence to move higher.
Now that we have discussed the basics of trading journals, we will now move towards the creation and implementation of a trading journal.
Creating a Trading Journal
As previously mentioned in the section above, you can utilize basically any type of application like MS Excel or Google Sheets that lets you create and manage spreadsheet files, inside of which you can store a record of your trading activities and their results. Alongside that, a note taking application like MS word or any other is also advised to be used in order to store information on your overall thoughts about trading activities.
There are many sources on the internet which provide excellent trading journal templates if you do not wish to spend the time in creating one by yourself. Despite of whatever template that you pick from the source, you must have to make sure that those templates consist of all the trading related columns and headings required to store useful information of trading activities.
In conjunction to that, you can also put an image of the trading chart you followed alongside the relevant trade you implemented it on, giving you convenient way of analyzing without having to recall anything.
Now let’s move towards knowing and understanding the important columns and elements that should exists inside of a trading journal spreadsheet and note file.
- Financial Instruments
In this column, you should mention the asset name and type, including the trading platform you used to trade that asset around. For example, Ethereum (ETH) on Binance should go inside of the column.
- Date and Time
The proper dates and times you performed the trades, including if there were any special considerations to why that specific date and time was chosen. For example, you bought Bitcoin worth of $100 on the 4rth of July, at the time of a trading lull when Bitcoin displayed a drop in price at 2:00 pm. At the time of a lull, cryptocurrency valuations experience drops due to news and stories already being published by the time of noon.
- Trading Positions
It is important to store information about both your short and your long positions in the market, letting you reform your trading strategy. Deciding on a long position means that you as an investor gain more light on cryptocurrencies, hoping that the price valuations will grow in the coming time, enabling those cryptocurrencies to be sold in profit.
As for the short position, investors borrow cryptocurrencies and then sell them on the existing market rate, so when the price valuations experience a drop, the investor purchases the same cryptocurrencies at a lower price, returning the borrowed cryptocurrency, meanwhile attaining the difference as profit for themselves to enjoy.
- Prices and Stop Loss
The entry and exit prices are also a good column to keep track of. The entry price is basically the price at which you are initializing the trading activity, meanwhile the exit price is the price valuation over which you concluded the trading activity. Investors can start a stop-loss in trading, enabling them to apply a sell order routine when their sale price target is achieved.
- Trade Size
In order to have a clear view on the number of risks involved in the trading activity, it is important to keep track of the “tradable amount” inside of the trading journal. For example, you are risking 70% of the tradable value during one trading instance in the case of the tradable value to be $200 and you perform a trade using ADA, having $170.
- Profits and Losses
The results of the trading activity performed in conjunction with the trading strategy should be properly recorded, regardless of the nature, being a success or a failure, letting you as the trader to gain a much better view on what works and what does not and helping you in making a better decision for the future.
- Side Notes
Alongside the statistical data, taking detailed notes about your decisions and trading strategies is equally important to analyze your situation. As much as quantity is important, quality has the same level of significance. Any documentation applications like MS word, Overleaf Latex can be used to achieve this.
- Performance Charts
Developing a chart of your activities is also very useful to stay in touch with your performance. There are many chart making solutions present on the internet. Once you have managed to formulate a chart of your performance metrics, take a snapshot of the chart and either store it inside of a specific folder in your system or paste it inside of the document alongside the relevant trade, making the chart easily accessible if the case of you need to reanalyze your performance levels.
Initiating and concluding times in the chart need to be marked with a vertical line or text. Note down details about major economic events because of which you stepped side. Keep taking notes of everything, including daily market situations, number of trades, profits, losses, errors and the results. The idea is to make as many effective highlighting on the chart as possible, while considering that the chart does not become too cluttered.
This will not only discover your future but will also help you in having real-time vision over the market and its relative performance.
Using a Trading Journal Effectively
Now that we have understood the requirements and creation of a trading journal, we will move forward towards the usage of a trading journal. As all things, having a perfect trading journal is not possible. Each individual trader should take a closer look into the metrics they require or are advised not to use them when considering their trades into the journal. A trading journal must be designed around this idea.
Utilize the note taking application to record the reasons on why a particular trading strategy and position was considered. Equally important to mention are the details of highlighters that you have marked when observing markets in order to eliminate negative impacts on your overall performance. Additionally, an argument behind the effectiveness of the trading concept you used should also be included in the document.
Having a much deeper look into your trading proposals will help you discover the strengths and weaknesses of each individual trade.
After that, shift towards your spreadsheet file and keep recording your day-to-day trading work. It is important to keep this document well-updated and organized to find out the results in a more accurate way. Spreadsheet applications like MS Excel also have mathematical equations feature, helping your automatically calculate certain metrics in a quick way. Subsequently, repeat the same procedure, now recording the results of the trading activity after its conclusion.
Keeping a check of your spreadsheet file daily is important to gain knowledge about the severity of the exposure you have and the chances you have on strengthening your overall portfolio. It is up to you to figure out where you stand in the market and how you can improve your overall position. The utilization of a trading journal helps your trading career to be more performance-driven rather than becoming subject to useless emotions that will harm you.
With all this out of the way, the next step is to learn how to review the overall trading journal, which is discussed in detail in the next section of the article.
Importance of reviewing a Trading Journal
Now that you have managed to establish a solid record of your trading activities, you must now have to perform reviewing on both a weekly and a monthly schedule, going back and checking out your trading performance. This will help you to discover common issues, highlight which areas you are strong in and which areas you lack and need to figure out better strategies over.
As a sort of alternative, taking snapshots of your trading activities instead of having a journal can also be effective, but it cannot match the level of details present inside of a properly organized trading journal. It is extremely important to stick to a reviewing routine, in order to better asses yourself in every trading activity performed.
Concluding Notes
Taking advantage of a trading journal is considered as an extremely useful technique to stay ahead of others when it comes to financial trading, providing a clear view on your market performance, your strengths, your weakness, the amount of money you made and the amount of money you lost in case of a failed trading activity. Keeping a record of everything is important, not only in the financial industry, but all other fields as well.
This not only helps you recall things must after, but also helps you to become more accountable for each action you take and help you gain more productivity, removing any useless decisions that can waste both of your precious time and resources. Creating and using a trading journal is easy, so now that you have gained all this knowledge about them, start now and excel in the world of trading.
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