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Why It Is Important To Journal Your Futures Trading

trade journal

I’ve always been a fan of journaling my trades and encouraging other futures traders to also journal their trades. It doesn’t have to be difficult, as several online SAAS (software as a service) companies can automate your trade journalling, so you can accumulate your statistics.

Read below on why it’s important to get into the habit of trade journalling.

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The First Step to Success: Why Is It Important to Journal Your Trades?

Journaling your trades is a strategic tool you have to cultivate success. Don’t believe it? It’s true! When you journal trades, you are keeping a log of all trading activities. Even if this dedicated practice is initially time-consuming, it will prove to be useful in the long run. Trading while keeping a clear record of it will allow you to follow through with consistency.

In fact, by keeping a trading journal, you can start to analyze patterns and responses when specific trades were made. In other words, you can learn “trading psychology.” This log will help you to learn about yourself and your tendencies. Learning from past trades or mistakes is necessary for growth and development.

How to Keep a Trade Journal + Tips & Advice

First, begin with a loose-leaf binder. You can easily print the before and after charts for each trade. Keeping these papers in your binder along with important information about each trade is essential. You should include the system you used each time to trigger the trade.

Here are essential pieces of information you should have for tracking results and trade performance:

  • The date of the trade
  • The number of shares (also include why you chose that number)
  • The stock symbol
  • System that triggered the exit signal
  • System that triggered the entry signal
  • Why you moved your stops (if any)
  • Where the initial stops were placed
  • How much you loss or gained from the trade (in % format)
  • Which economic announcements were made near the time of the trade (if any)
  • Your summary on the trade (this includes your afterthoughts, fears and hopes) prior to opening position/while position was open.

It is important to remember your trading journal is not limited to only your trades. For example, if you come across articles on the internet about trading that inspire you or helped influence your thoughts, you should include them in your journal. Another helpful tip is to record statistics about the trade. This includes the MFE, the MAE and the duration of the trade. Make sure to refer back to the journal often so you familiarize yourself with past trades.

Pinpointing where you went wrong, missed opportunities and repeated mistakes will without a doubt help you improve the next time. It will serve you well to be brutally honest with yourself. This means taking a step back and evaluating your trades in their raw form. Remember that no matter how experienced a trader seems to be, there is always room for improvement. You know the old saying “practice makes perfect?” Well, it certainly rings true for day trading.

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10 Steps for the Perfect Day Trade Journal

Even with a journal, there is no “guaranteed” formula for success on each trade. However, what keeping a journal will do is allow you to see a clear record of various trading experiences. You’ll be able to see patterns in the trades clearly.

Step One: Be Aware of Your Weaknesses and Learn From Them

The same strategy that usually works when trading isn’t 100% guaranteed to work all the time. This is why it is important to always be trying new strategies to get a gauge on what works at different times of the day for example. A journal will allow you to see where you are falling short and need improvement.

Step Two: Set Your Goals

Keeping a journal allows you to set slightly higher goals than last time and achieve them with ease. This helps you to feel less pressured and gives you the comfort to continue growing. This is especially important for new traders who do not have a lot of experience yet. The goals you set are essential for helping you stay on course and reach your potential as a day trader.

Step Three: Build Visual Portfolio

By keeping a record of all your trades, you are essentially “building” a trading portfolio. This can be likened to starting a demo account for the purpose of “testing the waters” and seeing if you can outperform the market. This is a good experimental phase for new traders as it allows them to trade on a small scale before jumping into the official trading world. It is important to remember that trying your hand at trading in a new market builds confidence and gives you the courage to power forward even when it gets difficult.

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Step Four: Hold Yourself Accountable

Impulsive trading is the root cause of poor trades. When you trade on impulse, you are more likely to lose funds because you are not using practicality or logic. This is why a trading journal holds you accountable because you know that the trade you are about to make will be logged and the results will be permanently filed in your records. Even though this is your personal record that only you will see, it is still important to make the best trade you possibly can with the information you have. It will also help you feel proud of yourself at the end of the day, even if a few trades don’t go as expected.

Step Five: Monitor for Growth Stocks

If a trader has taken an interest in growth stocks, monitoring them rather than buying is a viable strategy. Over time you can monitor them and accumulate data to eventually begin trading them. By monitoring growth stocks, you are able to notice all the risks associated with trading them. It gives you a birds-eye view without jumping in too quickly. A fundamental approach is recommended when attempting to invest in growth stocks, as opposed to a technical one.

Step Six: Pick Up on Trading Psychology

Our emotions play a critical role in almost everything we do on a daily basis. It is no different with stocks. In your trading journal, you can see if you made more trades after a bad one to “compensate” for it. You can also see if you made rash decisions after a bad/good trade. You can begin to analyze your behavior and patterns. It is an essential component to ensure your emotions do not have a negative consequence on your trades. You don’t want to engage in emotional trades, meaning you’re only doing it because you are upset about a previous trade or outcome. Make sure you’re starting your trades from a calm, practical and rational place.

Step Seven: Analyze Risk Management

If you find yourself taking a positing that is too small or setting the stop loss too close to current pricing, you likely aren’t taking big enough risks to see any reward. Risk management allows you to identify errors. Your journal will serve you well in this sense.

Step Eight: Use it as a Planning Tool

Your trading journal should include your plans as well as the actual details. In other words, write down your profit goals for each trade, “visualize” how much risk you will take and how you plan on handling the trade as it moves forward. Make sure you are consistent with your entries and brutally honest with your goals and the results of your trades thus far. You need to have exact numbers and figures if you’re hoping to analyze trends and patterns. Anything less than exact numbers will only throw you off down the line when you need to analyze results.

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Step Nine: Use it as your Personal Archive

Since your journal is keeping track of all your trades, it is similar to a personal archive. This means you can refer back to certain trades, specific weeks/months or even years (depending on how long you keep the journal). Furthermore, you can take a look at specifics such as: how often you have traded, how successful each trade was and which trades were more successful. This form of personal archive helps you grow as a day trader and perform better each time.

Step Ten: Study the Methodology of Trades

Paying attention to how your specific system of trading works as the market continues to evolve is key. For example, if your system works in a trending market or if it works at different time frames. This type of information is key because it enables you to have the upper hand. There may be other traders who are not keeping thorough journals and therefore don’t have the same insights and information you do. Being strategic about your decisions is the best way to bring about success and profitability.

The Bottom Line

When trading, the second best thing to having a personal mentor or coach is a diary. The reason for this is because by journaling you are essentially “watching over yourself” in the way a mentor or coach would. You are holding yourself accountable and disciplined. That is essentially what a mentor does. Your own forex journal can be more useful than fancy books written by successful traders because the information in your journal is specific to you. You’ll learn more by reviewing your own trades than by seeking outside information the majority of the time. Keeping your journal exact and accurate will be your biggest asset moving forward.

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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: 

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

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