Whether you’re only considering trying out forex trading or you’re already a trader, there’s a good chance that you might have heard tips mentioning the importance of a trading journal. If you haven’t, you should know that these journals are essentially logs of all your trading activity. They are used to keep track of one’s performance over a certain period of time and can be used to evaluate your strategy, check out your profits and losses, look for any recurring issues, etc. However, what you keep track makes a huge difference in how effective your journal will be. If you’re not sure what stats to keep track of, take a look at our suggestions before for a quick guide.
Your win percentage is pretty straightforward, as it shows you if you’re winning more trades than you’re losing. Most of the time, a higher win percentage will mean more profits. However, this statistic might not be the best indicator of success if your losses are greater than your wins. For example, winning 1% on each winning trade but losing 2% on each losing trade would mean that you weren’t doing as well.
Your risk/reward ratio revolves around the amount of money you’re willing to risk on each trade and how much you could profit. It’s important to figure out how much you want to risk on each trade so that you can ensure you could gain enough to make the trade worth it.
In many cases, journal entries wind up more in the direction of one’s own self-analysis about the ways they were feeling or what they were thinking when entering or exiting the trade. It’s important to log this, but you’ll also want to include data about the market itself for the best results.
What were you thinking when you entered or exited each trade? Emotion is at the heart of trading psychology and it can really wreak havoc on your trades if you allow it to. This is why you should always log any feelings you might have that affected your trade. Did you pull out before hitting your stop loss because you were anxious? This would be an example of emotion you should log.
You might want to beat yourself up over a silly mistake, but these things happen. It’s still important to log any losses that were caused by your own error, however, so that you will be able to see if it’s a big problem later on. One example of a common mistake many beginners make involves forgetting they’ve entered a trade. This might seem like a crazy mistake to make, but it is worth noting. You might just realize that avoidable mistakes are causing you to lose more money than you thought once you go back and check out those results.
A Few Quick Tips
- Always begin the journal entry before the trade and end it afterward.
- Write down everything in detail so that you won’t be missing any crucial information later.
- Remember to include market data and possibly screenshots, rather than only focusing on a self-analysis.
- Know that it’s important to log mistakes – if you forgot you entered a trade, be sure to write down what you were doing that caused you to forget.
- Don’t forget to log any emotions that might have affected your trading decisions.