In Forex, there is always room for improvement. Successful traders keep a journal to review results and better their methods. These diaries contain descriptions of decisions, from entry parameters to financial results. It is a priceless educational tool for anyone who is serious about Forex. Basically, a Forex trading journal is a log of your activities. If you make notes correctly, you will see where you fall short and what methods are most fruitful. But how is one to use a trading journal correctly?
Purpose of a Forex Trading Journal
When you trade online, learning never stops. Perfection is unattainable, but you can always find ways to do better. There is an entire philosophy behind trading journals. Once you see the benefits, you cannot deny them. In fact, keeping a journal could be one of the best decisions you make as a trader!
First, you will arrive at the best trading style faster. Newbies find it difficult to choose a strategy that fits their personalities. They should learn about existing systems and try them in practice. A journal facilitates analysis, so you can settle on a single style faster.
How to make a Forex trading journal? No universal structure for notes exists, but a grid book could be the most convenient. You can make notes in different columns. This way, it is easy to compare and contrast afterward. Make sure you describe the following parameters for every decision. This is the bare minimum.
- Why did you open the position? Note down your motives for entering the market. Be truthful with yourself. If you were acting on an urge or hunch, note it down with precision.
- When did you open the position? Write down the time when you entered the market.
- What was your entry price? Make sure the value is accurate to the pip.
- How long did the position last? Forex trades have a different duration depending on the style – from seconds to weeks.
- Why did you close the position? Note down your motivation for exiting. Here, honesty is just as important.
- What was the result? Note down how much you made or lost on the position. Was the decision fruitful at all?
Trading journals are not only for novices. As traders become more experienced, they may add more variables to the system. Of course, some experts abandon their journals as they master the art of trading. Still, the majority of professionals continue making notes, as the value is undeniable.
1. To Polish Your Style
Without a way to monitor performance, can you be sure you do everything right? You have no opportunity to track how many pips you gained over a period of time. Even the win-loss ratio is an approximation. A journal provides the clarity you need to excel in the profession.
First and foremost, a journal will help you choose the best strategy. When you know what course of action to pursue, you can focus on your skillset. Secondly, the notes are irreplaceable for strategy improvement. Forex is a field where advancement is perpetual. Here, learning never stops.
The moment you feel your style is ideal is the moment you can lose everything. Overconfidence and complacency are common causes of failed trades. In Forex, defeat is not free. Sometimes, the cost can be too large for you to continue.
2. To Follow Your Plan
Keeping a journal is also a great way to ensure consistency. This is the cornerstone of trading success. When you describe trades in writing, you are less likely to forget important elements of your approach.
All too often, traders lose money because of their laziness or sloppiness. Following your plan is vital. It prevents erratic decisions that are detrimental to anyone’s results.
The international Forex market is colossal. Every day, institutions & individuals make transactions worth trillions of dollars. Here’s how this works.
However, keeping a journal is only half of the task. You also need to analyze your notes regularly. Set yourself a time to look back and analyze all of your entries. Do this at least monthly. For the most thorough analysis, create a spreadsheet where you will add all entries without exceptions. This is a great way to compare successful and failed trades.
3. To Reduce Risks
A meticulous trader can identify risky variables that should be removed. Any factors that hinder your progress should be re-evaluated. Stick to the factors which really work. You will then be able to formulate an efficient risk management strategy. This will prevent excessive losses.
How to Make a Forex Trading Journal
You need a system for notes. Follow our guidelines to make sure your forex trading journal brings real value. Here are seven important considerations.
Do Not Lie to Yourself
Your journal will be useless unless the information in it is accurate. Be honest with yourself and do not try to fudge the numbers. Admit the ugly truth if your strategy seems to fail and work out ways to improve it. You need to be aware of your own weaknesses, so you can eliminate them in the future.
Be extra precise and note down every detail to the pip. There is no point in fooling yourself. If your self-esteem suffers, use it as an impetus to do better. Underestimation will not help you either. You should know exactly how well you are trading.
This also concerns the motives behind your decisions. Be mindful. Reflect on your own motivations for trades. How many of your decisions have been rational? Complete honesty is the only way to learn and improve. Everything depends on your own skills, perception, and ability to absorb new information. Your journal should provide sufficient information for future growth and development
Sometimes, You Will Forget
Sooner or later, you will forget to note down some of your trades. This is not the end of the world, though. Our memories are not perfect. Do not be harsh on yourself if this happens. Instead, move on and create effective reminders.
If you forgot to mention trade, do it later. Of course, accuracy may suffer, but it is still better than nothing. Do not think one forgotten trade is an excuse for abandoning the journal altogether. This is a foolhardy thing to do.
Keep Track of Your Emotions
Humans are not entirely rational in their behavior. Emotions hamper trading progress, as they cloud our judgment. Keep control of your feelings, so you do not act on every urge. Trading is always stressful, and stress resistance is essential. Do not let a momentary change in the market interfere with your long-term strategy
You may think that trading psychology has little importance. This is surely a dangerous misconception. Driven by emotions, traders chase losses, rushing to open positions when they should stop. This only exacerbates the damage. Strong feelings, both negative and positive, may cause expensive mistakes.
When you feel depressed, aggressive, or excited, refrain from trading. Emotions disrupt rational systems. Not everyone can suppress their impulses. Still, this is exactly what you should do. Sometimes, you may even find that your daily routine interferes with your trading decisions. Work mindfully, and success will come!
Pay Attention to the Market
Trading decisions do not exist in a vacuum. They are based on market factors that are changing all the time. Therefore, keep a balanced view. Your own decisions are just as important as the market, so describe both. There are always forces beyond your control. They should also be analyzed.
Every day, describe how the market behaves. This information is essential as it affects your financial results. Sometimes, it is too difficult to enter and exit without damage. Sometimes, you will make a loss regardless of any strategies and systems.
Moreover, your strategy may work better in particular market cycles. It is even possible to apply different strategies to different market scenarios. Do not get stuck in your ways.
Make note of any major events observed throughout the day. Important announcements by financial institutions like central banks can have a strong impact on currency rates. The same is true for political changes. Any fundamental trader should know this.
From GDP figures to international diplomacy, there is a lot to reflect on. For example, when the Central Bank raises its interest rate, the national currency gains value, and vice versa.
Every Forex beginner is advised to keep a journal. It allows them to apply theory to practice and see how popular strategies work. As you gain experience, your journal will help you hone your methods. It is impossible to get better if you do not evaluate your own performance. Look back at your achievements at least once a month and draw conclusions to increase effectiveness.
Aside from trade parameters, include descriptions of your own emotions and rationales. Feelings play a large role in trading, although their value is not obvious to everyone. Be honest with yourself and be aware of impulses behind your failures. Finally, take time to analyze the trading environment. How is the market acting today? Sometimes, you just cannot win. Any laser-focused strategy fails, at least sometimes.