How to Use a Trading Journal
From Jim Rohn to Mark Twain, several successful people stored their lives in a personal journal. The benefits of this will be explained in further articles. For now, let's concentrate on the execution of journaling your trades.
UPDATE Oct. 2018: Since writing this article in 2015, my trading journal changed. I recommend you go through my Guide to the Ideal Trading Journal. At the same time, feel free to subscribe on Youtube!
Since it is often not practical to think about how to do your journal for too long, For the purpose of this, DesireToTRADE offers you a free trading journal. This journal will provide you key stats about your trading once you enter your trades in it. Over all the types of journals I tried, this is the most effective and yet the most simple one.
You can grab your trading journal for FREE!
Once you've downloaded the journal, follow along as we'll go over it step by step. On another note, if you prefer to develop your own journal, feel free to do so. That will give you more freedom on what you track but may be time-consuming.
Step By Step Process to Fill in a Trading Journal
Step 1: Fill in the information concerning your Target Trading Monthly Income (TTMI)
Those are basic information including your name and the date at which you are planning to start tracking your trades with your trading journal.
Then, enter the monthly revenues you are planning to earn EXCLUDING your trading revenues. If you are not familiar with this, I encourage you to check out The Guide To The Ultimate Trading Plan first. Right below that, enter your planned monthly expenses including the money you plan to spend on your Financial Goals. Entering those two values will automatically calculate your TTMI, that is your Target Trading Monthly Income. This is your monetary goal. It is what you will commit on earning from your trading.
Step 2: Enter your trade details
This step consists of entering information about what is your specific trade, where you entered it and where you exited it. For that purpose, you must fill every field and do not leave any of them blank unless necessary.
If you are trading on a chart frame of 1hr or above, I would recommend filling in details about the trades you took as soon as you close them. If you are trading on a lower time frame, you can fill the information at the end of the day.
The fields with their meanings are described below:
Entry Date: the date at which you entered the trade (i.e. 05/07/2015).
Asset: the element you traded. It can be a currency pair, a stock, a future, etc. Give a name you can recognize (i.e. EUR/USD).
Type: whether you bought or sold the assets (i.e. Long or Short).
Quantity: how many units you bought (i.e. 1,000, 10,000, etc.)
Entry Price: the price at which you entered the market for your particular trade (i.e. 1.54352).
Reason: give a short reason why you entered the trade or state the strategy it fulfilled (i.e. pin bar setup, news release, etc.).
Stop Loss: the price at which you placed a stop loss if any (i.e. 1.53852).
Take Profit: the price at which you placed a take profit if any (i.e. 1.54852).
Close Type: how you exited the market (Manually, Stop Loss, or Take Profit).
Close Price: the price at which your the market was exited (i.e. 1.54852)
Profit/Loss: the money amount you gained/lost due to that trade (i.e. $258.35).
Comment: any comment that can help you in the future (i.e. the pin bar was too small).
Step 3: Analyze how you did
The good thing about the FREE trading journal is that you get key statistics calculated for you without the need to press a button. Some of the key figures you should look at are:
Average Reward-To-Risk Ratio: the amount of money that could have been gained over the amount of money that you risked. Bigger is better.
Winning-To-Losing Ratio: the number of trades you took profit on over the number of trades you lost money on. Bigger is better. For each losing trade, you will get that many winning trade.
Average Profit/Loss: average profit or loss that resulted from all your recorded trades. Obviously bigger is better and you highly prefer positive numbers.
Total Profit/Loss: total profit or loss that resulted from all your recorded trades. Obviously bigger is better and you highly prefer positive numbers. This is your key metric because you will be able to compare it to your TTMI.
Profit-to-TTMI: the percentage of your TTMI that you earned. This can be considered as your productivity factor. To increase it, either adjust your desires or find a way to increase your trading income. You can use my coaching strategies or anybody's else services.
Remember that you must be comfortable with your trading journal. If you do not feel that the journal presented above is a good fit for you, feel free to develop your own. The important is that you start tracking every single of your trades and that you comment on them.
I recommend starting over this journal every month while keeping a copy of your previous journals so that you can compare. This way, you will be able to spot quickly when something changes in your trading and adjust effectively.
If you do things differently, feel free to share with us how you handle your trade tracking. Comment below and we can talk about it!