I have already shared a few articles on how you can succeed as a trader here, here, and here. Today, I am going to talk about one of the most underrated risk mitigation technique – trading journal.
The trading journal is an indispensable way to enhance one’s trading skills. It helps you systematically record all trades, which helps you identify your strengths and weaknesses, analyze trades, and create a strategy that will make you profitable. For every professional trader, a trading notebook is an essential tool that provides an organized method for evaluating and enhancing trading performance.
Here are some key advantages of maintaining a trading journal.
It gives a complete picture
Maintaining a trading journal gives you a complete view of your performance by recording entries, exits, and positional sizing. With the comprehensive view, you can thoroughly examine your trading practices and tactics, making sure no aspect is missed.
It helps plan and execute your trades easily
Trading journal help you to plan your trades by writing down predetermined entry and exit points. This planning lowers the possibility of mistakes by ensuring that every trade is carried out by a well-considered strategy.
It helps identify what works and what doesn’t
Examining past trades helps to understand what works and what doesn’t in the market. Identify your winning strategy pattern and try to improve it by using various possible ways. This continuous feedback loop is essential to improving overall performance and your trading strategies.
It helps keep your emotions in check
A crucial component of successful trading is emotional restraint. A trading journal will help you to identify your emotional triggers that cause an impulse action. It gives an opportunity to overcome your triggers and making logical trading decisions facilitated by emotional control.
It helps you develop a system
Developing a robust trading system is necessary to survive and become profitable in trading. You can create a customized trading system as per your strengths and preferences with the aid of a data-driven approach.
Now you must have understood why maintaining a trading journal is necessary, I will give you a step-by-step guide to making a trading journal.
Determine your trade in advance
Failing to plan is planning to fail. So, before entering into any trade it is essential to have a predetermined plan. Your trading strategy should have fixed entry and exit criteria, along with risk management guidelines, and profit targets. A well-thought-out plan acts as a road map, guiding you through the market’s ups and downs.
Record trade details
After executing the trade, one must record the date and time, entry and exit, positional size and stop loss (to keep a track of the risk you are willing to take), trade rationale, and outcome of the trade in a trading journal. This detailed record serves as the raw data for analyzing your trading performance in future. It lets you spot trends, track progress, and gradually improve your tactics.
Note down your emotional and psychological factors while trading
It is essential to record your emotional and psychological behavior during every trade. Note your feelings (e.g. greed, fear, anxiety, confidence) and the factors that influenced your mindset (e.g., market volatility, personal stress). Understanding your emotions while trading helps in identifying triggers that lead to impulsive or irrational decisions. Upon identification of the patterns, one can find his/her way to overcome them.
Consistent Analysis for Continuous Improvement
Frequent evaluations offer a methodical means of evaluating your performance. Continuous improvement requires reviewing your trading journal regularly. Every week, every two weeks, or every month, set aside time just to review your trades. Identify the pattern in your successful and unsuccessful trades. Evaluate the trades on the basis of risk reward, and win ratio, and compare yourself if you are beating the index or not. Identify effective techniques and improve them.
Improve Performance Based on Past Data
The objective of keeping a trading journal is to leverage the information gathered to enhance performance going forward. Use the past data to identify different strategies that work in different market conditions. You can improve the consistency and profitability of your trading methods by methodically implementing these ideas.
If you start preparing a trading journal then I can assure you that your trading performance will improve. You will reduce your risk and improve your probability of success in markets and launch you on a journey to ace the index.