How to Keep a Trading Journal

Introduction

There are many factors that make one a successful day trader. Alexander Elder, in his book, come to my trading room, he condenses all these factors to three: mind, method, and money management. It is impossible for a trader who lacks any of the three to succeed. On money management, he talked on the importance of having a trading journal and how successful traders use them. In this article, we will look at what a trading journal is, why it is important, and how you can create one.

What is a Trading Journal?

A trading journal is a document – often a spreadsheet – where you write all of your trades and the reasons for opening and exiting them. The journal can also be in form of a note book or an online mobile application like Evernote or OneNote. Experts believe that traders who journalize all their trades are more successful than those who don’t do it.
There are several reasons why successful traders keep a journal.

First, they realize that all trading systems have holes. Having a good journal will help you to identify these holes and seal then to avoid repeating the same mistakes.

Second, we are all forgetful beings. As such, we often repeat the same mistakes. A good journal will help you remember the mistakes that you made and avoid repeating them in future. For example, if you lose money by opening a trade before the release of a major economic data, the journal will remind you not to repeat it in future. The journal can also help you remember to have a stop loss on all trades that you initiate.

Third, a good trading journal will help you be more organized. It will help ensure that all trades you open are in accordance to your trading strategy. In our experience, we have seen many traders go out of business by opening trades without having a plan.
In addition, a good trading journal will help you identify your most successful trades and replicate them in the future. Take a trading journal as those notes that you used to keep at school and how they contributed in making you a better student.
To be clear, the process of keeping a trading journal can be repetitive and boring. In my early trading days, I used to work at a large investment firm that specialized in currencies and commodities. In that fund, there was nothing more important to the management than record-keeping. This made sense because the company gave each trader an account with about $100k. By looking at our journals, they were able to have an overview of our trading and decision-making process.

Writing a Trading Journal

There is no standard format for trading journals. There are traders who have succeeded by having a journal with just three columns. Others have succeeded by having a comprehensive journal with tens of columns. In the next part, I will show you how to write a journal using the one that I use to trade. This journal has three key parts:
Currency pair checklist. In this part, I write down the current price, the daily high and low, the indicators that I use, and a comment.
Trades I am waiting for. In this section, I write down the trades that I am waiting to open and the reasons for that.
Exited trades. In this part, I wrote down the reasons why I exited the trades. This is a useful section because it helps me avoid repeating the same mistakes again.

The Currency Checklist

A common mistake that many traders do is that they open trades without doing any research or analysis. They simply launch the software, look at how the charts are, and then open a trade. This is wrong because they end up making mistakes when they use this approach. Instead, it is recommended that you open a trade only after ensuring that it meets your criteria. For example, you can be a trader who uses the Average Directional Index (ADX) and the RSI. Before you open your trade, you need to ensure that the two indicators are in line with your strategy. The table below shows a sample currency checklist that you can use in your journal.

Currency Pairs Current Price Daily High Daily Low ADX (14) Above 30 ADX (14) Below 30 RSI (14) Below 30 EMA 14 EMA 28 Comment
EUR/USD
GBP/USD
USD/JPY
USD/CHF

In the first column of the table, we have the currency pairs. These should be the pairs that you trade often. It is always a mistake to specialize on tens of currency pairs. In the second column, we have the current price of the pairs. The second, third, and fourth columns have the present, the day’s high, and the day’s low. After this, we have the indicators that you use. In a trending chart, an ADX value above 30 is usually an indication that the trend is relatively strong. An ADX value below 30 is a sign that the trend is not strong, which is an indication that you should not be long it.
The RSI is an oscillator, which is used to identify overbought and oversold levels. When the RSI is below 30, it is often an indication that the currency pair is oversold, which is a signal to buy. If the RSI is above 70, it is usually an indication that the pair is overbought, which is an indication to sell. The exponential moving averages (EMAs) are used to show the nature of the trend. In the last column, you should have a comment about the market conditions. Remember, you can replace these indicators with the ones that you use regularly.
The benefit of having this currency checklist is that it will help you get a feel of the market. It will also tell you whether you should start trading right away or whether you should wait a bit.

Trades You are Waiting For

The next part of the trading journal lists the trades that you are waiting for. This part is very important because it helps you know exactly when to buy or sell a currency pair. Here is a good example of how you would make that journal entry.
September 10, 2019
Buy EUR/USD pair when it breaks above 1.1200 (the previous day’s high)
Target price 1: 1.1250 (50% Fibonacci Retracement level)
Target Price 2: 1.1275 (61.8% Fibonacci Level, weekly high, and upper Bollinger).
Stop Loss: 1.1150
Economic events to watch: US NFP and ISM Manufacturing PMI and ECB decision.
Another example.
September 10, 2019
Sell GBP/USD 1.1350 when it makes a double top on the 30-minute chart.
Target Price 1: 1.1300 (61.8% Fibonacci level, and previous support)
Target Price 2: 1.1250 (Weekly low).
Stop Loss: 1.1400 (Important resistance)
Events to follow: Brexit news, Fed chair statement, and UK employment data.
Having this entry on your journal will help you have specific targets on when you expect to open trades. It can also help you use the limit and stop orders. A limit order is an order to buy or sell a currency pair at or below or at or above a specific price. As such, the trade and the stops will be implemented even when you are not there.

Completed Trades

This section of the trading journal is meant to help you learn from the trades. At the end of every trading day or week, it is important to review the entries on this section. Doing this will help you avoid repeating the same mistake in future. It will also help you to place similar trades in future. Here is an entry for the last example above.
September 10, 2019
Sell GBP/USD 1.1350 when it makes a double top on the 30-minute chart.
Target Price 1: 1.1300 (61.8% Fibonacci level, and previous support)
Target Price 2: 1.1250 (Weekly low).
Stop Loss: 1.1400 (Important resistance)
Events to follow: Brexit news, Fed chair statement, and UK employment data.
Comment: Stop loss triggered as investors heard more positive information on Brexit.

What Makes a Good Trading Journal?

As mentioned, there is no rule when it comes to writing journals. Ideally, the journal should have two major qualities.
First, it needs to be simple to fill. This is because taking the journal can be a boring process to many people. Therefore, you should make it as simple as possible. You can make it just a simple spreadsheet document or even a word document.
Second, I recommend that you use one of the many cloud-based platforms to design your journal. While you can create the journal on a note book, a cloud app like Evernote, Box Notes, Google Sheets, and Microsoft Excel is better because of how difficult it is to lose the notes. You can also easily read these notes when travelling.

Conclusion

Statistics show that most people who start trading fail. There are many reasons why this happens. One reason why this happens is that they tend to repeat the same mistake several times. A good trading journal can help them avoid repeating these mistakes. The journal can also help you make informed decisions before you initiate a trade. It can also help you avoid opening trades that do not meet your trading strategy.