What is a trading journal and how to use it?

Education / 5 Min Read
Milan Cutkovic / 15 Jun 2021

The trading journal is one of the most underrated tools in the world of trading. The task of keeping such a journal can seem tedious in the beginning, and most traders lack the patience and discipline to update it frequently. Nevertheless, for those who keep a trading journal over the long-term, it could prove extremely helpful on the journey to becoming a profitable trader.

What is a trading journal?

A trading journal is a way to track your trading performance by recording your trades which you can later review to improve your trading activity by learning from both your successful and not so successful trades.

Tracking your progress allows you to study mistakes that you have made when opening or closing a position. It also helps you to stick to your trading plan and enhance your ability to make better executions in the future.

It can be much more than just a log of all the trades you've executed. It can be whatever you make of it. Traders can write down their thoughts, emotions and observations. It is important to take note of an important observation as soon as possible, as some of it might get lost during a hectic trading day.

What are the benefits of a trading journal?

Keeping a trading journal is a simple task that can provide significant results if kept up to date consistently. Using a pen and paper or simple excel document to track all your data can inherently develop a successful strategy and help avoid repeating trading mistakes in the long run.

The key benefits of using a trading journal are:

  1. Finding the right trading style - If you are day trading, but your journal clearly shows that you are often stressed out and fail in managing the risk correctly, perhaps you are more of a swing trader. Trading medium/long-term is not any easier than short-term trading, but some traders are more comfortable with it, as they can spend much more time analysing the data and do not have to make quick decisions. Trialling different trading strategies can help you find the right trading style.
  2. Identifying your strengths/weaknesses - If you are consistent with your journal, certain patterns should emerge over time. You should be able to identify your key strengths and weaknesses, which will help in finding the right trading style and strategy.
  3. Source of information - There is no trader that knows everything and can afford to stop learning. The markets are evolving all the time, strategies stop working and edges disappear. Therefore, traders need to educate themselves continuously. One way of doing it is by making observations about the market and taking note of those. Perhaps one of those observations will turn into an edge one day?
  4. Discipline - After some time, keeping a trading journal will not appear so tedious anymore, but a normal part of your trading day. It will help a trader to be more consistent and teach discipline.
  5. Numbers don't lie - If you keep trading statistics as part of your trading journal - even better. Along with your own observations, the stats will give you important insights. Starting a trading journal is fairly easy, but being consistent is the difficult part. Furthermore, a trading journal is very personal. There is no correct way of doing it, as every trader must know themselves what is most important and how they want to structure it.

Reasons why people don't use a trading journal

Let's have a look at the two main reasons why traders do not start a trading journal or fail to be consistent with it.

Time

It can appear time-consuming to keep a trading journal, especially if you are a short-term trader. Especially beginner traders will often say: "I don't have time to keep a journal, I have to watch the markets!"

Indeed, as a trader you make money by identifying good opportunities and not by writing a journal. However, one does not have to write down a note after every single trade, but instead make short notes after spotting something important. In the evening hours - when it is usually less busy - you can then put together a quick summary about the trading day and the key conclusions.

Keeping a journal should not be a forced activity. If it is quiet in the markets or if there are no new observations worth writing down – there is nothing wrong with skipping it.

The truth can hurt...

A trading journal is most efficient when a trader is honest with themselves. That does not mean that there should be too much negativity. Comments like "I had a terrible day! I'm wondering if this is worth my time and if I will ever succeed" won't make you a better trader. Instead, make observations and try to identify what exactly went wrong.

Example: "I identified a good trading opportunity, but due to an overflow of information I became insecure and closed my trade way too early."

What could be the solution to that? Perhaps the trader in this example is spending too much time on Twitter and the tweets from various sources made them feel insecure.

How to create a trading journal?

Now that you know the key benefits of keeping a trading journal and understand that to be a successful trader you need to be consistent, here are four easy steps to set up your very own trading journal.

Find your preferred method of keeping a journal: pen and paper, excel or trading journal software.

Decide what information you are going to track: instrument, long or short, date of trade, strategy used, reward to risk, successful or unsuccessful etc.

Enter your trades into the journal after you have finished placing stop losses and take profits. This is the most important step and you'll need to remain consistent and diligent when recording trades.

Review your performance after the delegated amount of time you have set yourself (daily, weekly or monthly), and analyse the trades.

What should a trading journal include?

At its simplest form, a trading journal includes such elements as:

  • Date and time of a trade
  • The instrument being traded
  • Position size
  • Long or short position
  • Entry and exit points
  • Result of the trade when the position has been closed

Additional elements can be included to further evaluate your trading style and performance. Remember, there is no right or wrong way of keeping a journal, it's a personalised document to help an individual trader analyse and improve their trading.

Some additional elements could include charts, market conditions commentary and your reasoning for opening the trade.

Steps to journaling a trade

If you invest your time properly into managing a trading journal, you have a great chance to increase your success rate with future trades. Conducting post-trade analysis following these steps will ensure you are using your time proactively when journaling your trades.

Log all of your trades - When you first create the trading journal you must decide what information you want to log, this includes things like the instrument, entry and exit points, and size of the position. After every trade you need to ensure you are filling out all the information points for each trade you made during that day.

Capture an image of the chart - Capture the chart at the time you entered into the trade and mark it up to detail with buy and sell points, technical indicators, support and resistance levels, and trendlines. Depending on how you've set up your journal, include this image capture with the journal entry.

Write specific notes about the trade - Recap the trade in your own words, either on the image capture or in a section of your trading journal dedicated to writing down key information. The most important thing to jot down is whether the trade went good or bad, and why.

Review your data, notes and chart captures - Taking time to review all the trades you have made in a day can help you identify potential mistakes or areas of improvement in your strategy.

Trade journal example

Trade journal template in excel

Download free trading journal template

A trading journal should be simple and tailored to your specific trading style and goals you would like to achieve. To help get you started we have created a trading journal template that you can utilise and build upon to help track your performance.

To continue to improve your trading skills and knowledge, check out our trading webinars, eBooks, online courses and educational content.

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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