This information can prove critical, especially when you start to experience negative trading results. During these times, the confidence of a trader can be shaken, especially if there is no clear reason as to why their trading results are poor.
Questions that can arise during these times are:
- Has the system stopped working?
- When should I stop trading with this system?
- Should I just keep trading despite losses?
Not having the answer to these questions can lead to a fear of losing trades. This can further lead to traders making common mistakes, such as revenge trading (taking too many trades to get the lost money back, without a concern for the strategy) or deviating from your trading system in an attempt to avoid further losses.
To avoid this, you can use your trading journal to look over previous results and find out if anything unusual is happening in your trading. For instance, you may believe that you have been sticking to your system, but in actual fact, you have drifted away from your system without knowing.
Analysing your trading journal also allows you to identify certain trades that you may have been taking in less than optimal market conditions. For example, you may notice that even though you were sticking to your system, there could be a particular time of the month where these trades resulted in losses. You may have then found that this is because of a regular news release that affects the market and results in the trades taken at the same time being losers. You can then continue with your trading avoiding the time of that news release.
Only by keeping a record of your trading activity will you be able to go back and make this judgement.
What to record in a trading journal
There are many things that you can record in your trading journal and everyone has a different preference. However, as a general rule of thumb you should try to incorporate more than just data. The following is a general overview of what you should include in your trading journal.
Recording your data
For the journal to serve its purpose, it is important to record the correct data: This includes a record of all the trades you have taken, and an indication of how those trades have performed on an individual and overall basis.
Many traders use a spreadsheet, because it can be analysed easily. A spreadsheet can be used to find useful information such as the overall profit of a series of trades, as well as the profit of individual trades. This information can be used to produce an equity chart– a chart that shows the steady rise or fall of your trading capital.
When losses are occurring and doubts start to creep into your mind, a quick glance at an overall rising equity curve can restore confidence and keep you on track.
Recording your thoughts
It is possible that your judgement is affected by certain things going on in your life, which would be highlighted more clearly when going back over the journal. Recording your thoughts will also help you monitor your own personal development in trading as your experience grows. You can observe how your mindset matured and your discipline grew.
Visual screenshots
It is also important to actually take a screenshot of your entry and the exit. Not only can you see how well the system is doing by the journal data, but you can actually see how well you are adhering to the system or whether there are circumstances when the system breaks down under certain market conditions. You can also see if there are any particular market conditions under which the system works particularly well.
You will not remember how every trade happened, but by recording screenshots you can visualise exactly what you were seeing at the time, and without the emotional influence of being in the market.
There may be indications from a screenshot that you can use in order to find better entries or tweak your system.
Public journals
With the development of the internet, many traders are opting to record their trading activity in public journals. The advantage to this is that a trader can receive feedback, engage with other traders, as well as share and develop trading ideas. Many traders find this beneficial, because they can develop their trading skills and see the progression of others, as they go through the same hurdles when they begin to learn.
It can also be a good way to instil discipline to consistently recording your activity, because the interaction and feedback help you to maintain a positive attitude toward keep a journal.
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