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How to Create a Trading Journal and Find Your Edge in the Markets

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Look:

A bodybuilder has a journal to track his diet, weight, and strength.

A scientist has a journal to track their latest findings and the results of experiments.

A chess master has a journal to record down his plays and his thought process of the game.

And it’s the same for trading!

But here’s the thing…

Most traders don’t have a trading journal or don’t even know what it is.

Why?

Perhaps you don’t know how to create a trading journal.

Perhaps you don’t know the importance of it.

Perhaps you don’t know what to write in it.

Well, no worries.

Because in this post, I will explain to you (step by step) on how to create a trading journal.

And by the end of it, you’ll have what it takes to find an edge in the markets so you can become a consistently profitable trader.

Sounds good?

Then let’s roll…

What is a trading journal and why you need one

Your trading journal is like a “diary” that records your trading activity.

If you ask me, a trading journal is a deciding factor of whether you’ll be a consistently profitable trader — or loser.

Here’s why…

A trading journal helps you identify your strength and weakness

Here’s the truth:

No one is a perfect trader, it doesn’t exist.

Instead, you must play to your strengths and prevent your weakness from jeopardizing your trading account.

Take me for example:

I used to lurk around forums and look for the latest trading strategies. Or, I’ll read a new trading book and see what trading systems it offers.

Obviously, I enjoy learning new trading strategies. But unknowingly…

…it cost me BIG TIME.

Why?

Because I didn’t know what worked, my results were inconsistent, and I didn’t how to progress forward.

That’s my weakness… hopping from one system to the next because “it feels right”.

But how did I realize my mistake?

Because I had a trading journal and I realized my trading setups were always different.

And that’s the problem. I couldn’t pinpoint what worked and what didn’t because my strategies were always changing!

But thank god I “woke up” from my mistake and I live to tell you about it…

A trading journal helps you find an edge in the markets

One of the biggest takeaways I had in trading is this…

If you want to be a consistently profitable trader, then you must have a consistent set of actions.

Now, it doesn’t mean if you’re consistent in your actions, you’re guaranteed to be a profitable trader.

Why?

Because you might not have an edge in the markets. And your consistent actions lead to consistent losses.

But here’s the deal:

If you have a trading journal, you can look back your past trades and identify which patterns are costing you money — and stop trading it.

Then, focus on the ones that are the most profitable for you… and you‘ll find your edge in the markets.

How to create your trading journal (before the trade)

The way most traders create their trading journal is to write down their entries, exits, profit & loss, and etc.

However, it’s not enough because it doesn’t dig deep into the factors that AFFECT your trading performance (like your emotions, your analysis of the markets, and etc.).

That’s why your trading journal should be split into 3 parts — before, during, and after the trade.

Only then you’ll get a full picture of the factors that drive your trading performance.

Now you’re probably wondering:

“What do I put in my trading journal before the trade?”

Your analysis of the markets and the setup you’re looking for

You might be wondering:

“What’s the purpose of it?”

So here’s the thing:

If you don’t write down your thoughts or prepare yourself ahead of the markets, you’ll find yourself missing obvious trading setups (which look obvious in hindsight).

So, by doing this, you will miss lesser trading opportunities and make more money.

Now…

Depending on your trading approach, you should do your analysis before the market opens or during the weekends (if you’re a longer-term trader).

Here’s an example:

On the daily timeframe, EUR/USD is in a healthy uptrend and it has bounced off the 50-period moving average (MA) the last 3 times.

If there’s a pullback towards the 50 MA, then I’m looking for a bullish candlestick pattern to get long.

My stop loss will be 1 ATR below the swing low with target profit just below the swing high.

Note: Your trading setup must be aligned with your trading plan. If you take any setup outside of your trading plan, then you’re not trading, but gambling!

A quick overview of potential trading setups

Now, if you’ve done your homework, you’d realized your trading journal can get lengthy (especially if you trade more than 20 markets).

So…

What you can do is summarize your analysis of the markets and the trading setups into a few words.

This means at a glance, you can quickly identify the potential trading setups that are about to happen.

Here’s how you can do it:

  1. Divide your trading setups into its respective categories
  2. Write the setups and the timeframe of it

An example:

And if you want more details on your setups, just refer to the trading journal you created.

Does it make sense?

Good. Then let’s move on…

How to create your trading journal (during and after the trade)

Now…

Here’s what you need to record during and after the trade:

  • Relevant metrics
  • Charts of your trade

Let me explain…

The relevant metrics for your trading journal

They are:

Date – Date you entered your trade

Time Frame – Time frame you entered on

Setup – Trading setup that triggers your entry

Market – Markets you’re trading

Lot size – Size of your position

Long/Short – Direction of your trade

Price in – Price you entered

Price out – Price you exited

Stop loss – Price where you’ll exit when you’re wrong

Profit & Loss in $ – Profit or loss from this trade

Initial risk in $ – Nominal amount you’re risking

R – Your initial risk on the trade, in terms of R. If you made two times your risk, you made 2R.

An example below:

Next…

The charts of your trade

At this stage, you’d want to save the charts of your trades.

Higher timeframe chart

This tells you where you are in the “big picture” and to identify key Support & Resistance areas.

Entry timeframe chart

This is the chart of your trading setup. You’ll want to state your setup, mark down your entry level and stop loss on it (I use green and red respectively).

Chart when the trade is over

This is the chart after the trade is over. You want to state the end of result of the trade with the R multiple gained/loss.

Here’s an example…

Higher timeframe chart:

 trading journal htf chart

Entry timeframe chart:

trading journal - entry timeframe chart

Chart when the trade is over:

trading journal - trade exit

And that’s all to it.

In the next section, you’ll learn how to use your trading journal to find an edge in the markets.

Let’s go!

How to review your trading journal and find your edge in the markets

This is where the magic happens!

If you had consistently updated your trading journal, you can now review it and improve your trading results.

Here’s how…

  1. Identify patterns that lead to your losses
  2. Identify patterns that lead to your winners
  3. Find ways to minimize your losses
  4. Find ways to maximize your gains

Let me explain…

1. Identify patterns that lead to your losses

Here’s the thing:

Among the different trading setups, there might be some which are causing you to lose consistently.

So, look through your trading journal and identify the worst performing setup — and stop trading it.

This simple adjustment will reduce your losses and ultimately increase your net profits.

Moving on…

2. Identify patterns that lead to your winners

Next, you’d want to identify your best trading setups. These are the ones that bring in the dough consistently.

So, look through your trading journal and identify the best performing setup — and focus on it.

If you want to find more trading opportunities, trade more markets, trade a new timeframe, or both.

Onward…

3. Find ways to minimize your losses

Now, let’s take things a step further.

After you’ve identified your best trading setups, you’ll still have losers on it.

So, look through the losers of your best trading setups and ask yourself…

“How can I minimize my losses?”

Perhaps you can cut your losses earlier.

Perhaps you can use a filter that reduces your losses.

Perhaps you can avoid trading certain time of the day (or week).

Next…

4. Find ways to maximize your gains

Do you want to take your trading up another level?

Great!

Then you must learn how to maximize your gains.

Here’s how:

Look through your best trading setups and ask yourself…

“How can I maximize my profits on these trades?”

For example, you can…

  • Scale out a portion of your trade and let the remaining run
  • Identify patterns that lead to monster winners and trail your stops on it
  • Think on your own two feet and figure something that works for you

If you can do these 4 things, then you’re close to becoming the best trader you can be.

Can you see the power of having a trading journal?

Free tools you can use to create your trading journal

Now, here are some tools you can consider using to help create your trading journal…

Google Docs

This is a free word processing tool by Google. You can use it to write down your thoughts and analysis of the markets.

Google Sheets

This is a free spreadsheet by Google. You can use it to record down the relevant metrics of your trading journal.

The good thing about using Google is you can save it to the cloud so you don’t have to worry about losing your information.

Microsoft Paint

This is a free image editing tool by Microsoft. You can use it to edit your charts and add any annotations if needed.

Snagit

This is paid screen capture tool by Techsmith. You can use it to save your charts, edit your images, and annotate with ease.

Conclusion

You must have a trading journal because it helps you find your edge, identify your strength & weakness, and improve your trading results.

A trading journal can be split into 3 parts: before, during, and after the trade.

Before the trade: This is where you analyze the markets for potential trading setups so you don’t miss trading opportunities.

During and after the trade: This is where you record the relevant data so you can review them and find ways to improve on it.

Now, if you can do this consistently, your trading results will get better. And before you know it, you are already a consistently profitable trader.

Yay!

Now before I end this post, here’s a question for you…

What do you write in your trading journal?

Leave a comment below and let me know your thoughts.





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