Why are Trading Journals Important?
A trading journal consists of a complete record of all the trading activities done by traders over time. Traders write down the outcomes of all their trades to assess their overall performance. A trading journal helps traders to draw objective information when they start doubting their trading system after a series of trade losses.
Light in the tunnel
Trading journals can prove to be very useful especially when traders start witnessing negative trading results. While on many occasions, traders would know the reason for getting poor results, but when they don’t, that’s when they refer to a trading journal.
Keeping a trading journal will allow traders to answer questions like ‘should I continue trading after experiencing a string of losses’ or ‘Is my trading system still working’ in an easier way. They would be able to find a deviation from their initial trading strategy that they haven’t noticed before.
The main purpose of keeping a comprehensive trading journal is to avoid taking impulsive actions. This is why traders should write down all the information in a sorted manner, including the entry and exit points of their trades. It’ll be better if traders can record their thoughts and capture the trading session with screenshots of the trading platform. Many brokers provide previous trading records in detail, some of which include:
How to create a trading journal?
The process begins with writing down the reason behind entering a position before committing to it. Doing this will ensure objective reasoning that can be used at a later point, which will be unbiased by a possible disappointment. Another advantage of keeping a trading journal is that traders can organize it as a spreadsheet that shows them the overall profit of single trades or series of trades to produce an equity chart. This chart displays a positive balance of their trading history, which may cheer them up and restore the confidence that they have lost after experiencing a streak of losses.
Writing thoughts in a trading journal will help traders think twice about their strategies and prevent them from entering a position for any other reason besides following their strategies. A trading journal will prevent traders from doing revenge trading, which is done to recover from the losses but instead causes more losses to traders.
Exit strategy matters just as much
Traders should write down their exit strategy before entering a trade position. A better approach would be if traders can write down the entire process of conducting trade, from entry to exit in a trading journal.
It’s important to have a pre-planned exit strategy to avoid feelings of doubt or greed that arises during trading. At times, humans are irrational and impulsive, so the best way to secure an unbiased exit point is to have it written beforehand when there is no pressure at all.
Traders should also write down the reason why they closed a position after exiting the trade and especially if they have deviated from their initial plans. The most common reason to steer away from a pre-planned strategy is a lack of discipline that requires years of practice to develop.
Capture your screen
Traders should capture screenshots to visualize trade entries and exits, as these will give them a clear picture with a timestamp of the market movements and where they were positioned. After a few weeks or months, they may forget how that trade went, but a screenshot will help visualize what they say at that time without the pressure of being on the market.
Traders should also analyze the results of their trades and learn from their mistakes. The screenshots they have captured will not only help scrutinize their mistakes, but also the good moves they have made and things they would have done better.
The best way to learn from mistakes is to have them documented in a trading journal. The information added in the journal can’t be found in any book or seminar. Professional traders maintain a trading journal to utilize their strengths and minimize their weaknesses.
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