Forex Trading: Trade Journalling

Forex Trading: Trade Journaling

Contrary to popular belief, success in forex not only hingers on mastering your chosen strategy or the complete understanding of economic indicators. There is discipline and hard work involved, and at the heart of this discipline and hard work, many traders keep what is called a trade journal.

A trade journal is not just a log of buy and sell orders. It is a reflection of the trader’s discipline and hard work; the discipline to log down every trade, and the corresponding hard work to do so as well. The trade journal’s primary purpose is to provide traders with a structured framework for analyzing their trades and refining their decision making over time. Do you have a tendency to close trades early, missing out on possible profits? Based on the effort you put in in the trade journal, you are able to gain valuable feedback like this, which will help you improve your forex trading skills.

What should you include in a trade journal? Firstly, start by documenting each and every one of your trades. Include the following details in your journal:

• Currency Pair Traded
• Position Size
• Type of Trade / Entry and Exit Prices
• Duration of Trade

These factors will serve as the foundation for further analysis.

Secondly, include the reason for entering the trade. Did you enter because of a strategy? Did you enter because of a gut feeling? This is important to record down, as it is a in depth reflection of your behaviour as you trade. Similary, record down the decision for exiting the trade. Did it reach the take profit level that you set? Did you close early? Why did you close early? Recording this information is important as well, not only as an indication of your behavior but the overall success probability of the strategy.

Thirdly, evaluate both the economic state as well as the emotional state that you were in when you entered the trade. Was it in a volatile period? Was there upcoming news? These are external indicators that can guide you make better decisions on whether to enter trades during these periods next time as well. As for your emotional state, what were you feeling when you entered the trade? Any feelings of fear, greed, overconfidence, or hesitation can impact your decision making with regards to the trade and should not be dismissed lightly as something unimportant.

Lastly, do a post analysis on your trade. Using performance metrics, you can identify what was the possible profits and loss generated from the trade, what was the risk to reward ratio as well as the percentage of your account that you were risking for the trade. This information, as well as the other information above can help you understand more about how you approach trading and identifies for you what you can learn over the course of trading. Do your results show you that you hold on to trades for too long? What should you do with this knowledge? Introspection based on the information gathered will definitely assist you in making forex trading decisions in the long run.

Understandably, some of us may not be too sure of what questions to ask ourselves, despite the comprehensive data we have gathered. The following are some questions we can ask ourselves, based on the information gathered in the trade journal.

• What are some patterns in my behavior?
  1. Do I trade often when I am in a bad mood? What are my results when I trade like this?
  2. Do I trade often when there is news? What are my results when I trade like this?

• What is the strategy I use?
  1. Do I trade base on strategy? What is my results and profits when I trade like this?
  2. Do I trade based on emotions? What is my results and profits when I trade like this?

• What currency pairs do I trade?
  1. Is there a reason why I use this currency pair? What is my success rate with this currency pair?

• Why did I use this Lot Size?
  1. Is the Lot Size I use based on calculations or an arbitrary figure I choose?

In conclusion, there are benefits to keeping a trade journal as a trader. In this complex world where success is not guaranteed, success can still be attained by putting in the effort and dedication. Your trade journal can accompany you in your Forex Trading Journey, and will assist you in thriving in this ever changing market of the Forex.