How to Journal Trading (2024)

How to Journal Trading

by Justin P.

In this article we're going to explore a subject that everyone talks about but very few explain in detail: record keeping. Unfortunately it's one of the boring aspects of trading, but just as good businesses do their book keeping, good traders that treat this as a business should have flawless records.

1. The Importance of a Trading Journal

In previous articles we have touched on the importance of maintaining good records. But why exactly is it so important to have good records in the first place?

Keeping good records acts like an attentive coach, quickly spotting where your problems are. For example, at a certain point of my career, I had a tremendous win:loss ratio but I still managed to lose money. My trading journal told me what I was doing wrong: cutting winners at their knees. The journal also informed me of what I was doing right—cutting losses equally fast—but when looking at the whole picture, my average win was only half that of my average loss. Thanks to keeping a solid trading journal, I had the necessary information to incorporate into my future trading habits to turn things around.

Honestly, the thought of staying oblivious to giant flaws in your trading approach should keep you up at night! You can’t take yourself serious as a trader if you don’t take the time to analyze where your weaknesses are so that you can fix them. Let’s take a look at common problems and where the trading journal comes in to save the day.

A) Am I cutting my winners short?

Start by thinking of your plan. Where was your target? Where did you exit the trade? If you're jumping ship too soon, go and look back at what would have happened if you held to your original convictions. If you are screwing things up by actively managing your trades, you have a head start on fixing your issue the next time you step up to bat. Use this tool to straighten your mindset. You might recall a few trades where you got out early because you were scared, but do you really expect to be able to remember the exact details of your emotions and thoughts for every single trade you’ve made? Of course not. That’d be unrealistic.

Using a trading journal allows you to keep track and look at what really goes on across all of your trades. Did you exit early because you were nervous that day because of big data coming out? Did you close out because you were irritated about events in your personal life? Did you make a logical, emotionless decision to cut it early for good reasons? These seemingly unimportant details will ultimately be some of the most critical factors to analyze in your trading.

In some cases, keeping records may help you even if your own discipline isn’t a regular issue. It can offer you insight on ways you can tweak your performance. Are you giving up a good portion of Maximum Favorable Excursion (MFE)? Get back to the drawing board and find a way to incorporate this into your trade management plan. Would you have been better off using a trailing stop? Did you forget to factor in the bigger-picture view? Could you have entered at a better point?

Another issue you can solve is your Maximum Adverse Excursion (MAE). How far do your winning trades go into the red before they go into the black? If you trade from the same angle for any length of time, you'll notice a pattern. Your trading journal will capture that pattern for you and will be able to say whether your average is 20 pips, 10 pips, or even 50 pips on the larger moves or more volatile pairs. Upgrading the efficiency of your entries will allow you to minimize intratrade drawdowns and maximize your returns. The less the trade goes offside before trotting along to target, the more efficient an entry system you have.

This isn’t easy to do. It takes time, dedication, and a lot of effort. But if you’re serious about making it in this business, you need to invest the mental and emotional capital into a trading journal.

B) How can I lose less?

Is there a common denominator linking together your losers? By looking at a given trading journal sample, you can look for any recurring factor that pops up in your losses. Are you trying to squeeze too much juice out of the trade? Are you falling into the trap of trying to pick market turns? Are ignoring clear signs it’s time to scratch the trade? Are you too quick to scratch a trade even when there is no clear sign to do so? Are there certain days of the week (like Mondays and Fridays) that seem to produce constant losers? Or are you simply not following your own rules? With the help of your trading journal, you can now see the root of your problems and fix it.

C) How can I just do better overall?

Do you miss many trades? Do you find difficulty finding an efficient entry? Do you find yourself waiting for “the right momentâ€