Here we can see some winners and know why they are winners; there we can see too many losers but we don't know why...
One of the major factors that separate the successful persons from the unsuccessful ones is the way both of them will look at every experience, being this experience good, not so good or bad. In this situations there are the ones who can find something to learn , gain some knowledge and consolidate their background. In other side, there are others that jump from experience to another experience without learn not so much from what is possible to learn from that experience, or they can't get anything useful at all. To get the most value from this events we need to review them after their end, because at the moment they occur maybe we don't have all needed information to review it. Transposing this ideia to the trading forex world, what may differentiate a profitable trader from a unprofitable one is the way each one see each trade made, the openness to learn from that trade and the effort in documenting it. When the trades are well documented, we can review them anytime if we want to see what we are doing well or wrong. If we document each trade we make in a consistent way, we are creating a trading journal.
A trading journal is where we document each trade we make filling it with some details about this trade. It can be simple or complex depending of the amount of data we use to document each trade. We can use for this documentation a simple blank paper, notebook or agenda. If we fell confortable with using computers and other software, we can use any software where we can write the details we want about the trade. One great choice can be any spreadsheet software where we can group the information, make some useful calculations and also charts about the trades. We can also use online trading journals or proprietary software created especifically for this type of documentation. For a trading journal to be useful, there must be at least some essential information about each trade, and with this information we can "recreate" all the steps we have done to trigger that trade. The trading journal must reflect the reality, not what we want to be there. It's important that we do not try to fool ourselves neither the trading jornal. In the way as possible, we must only add facts to it. The only area more flexible is everything related with psicological factors but don't exagerate. All items i refer bellow don't are mandatory, some can be removed or not considered, others can be added and we may need to adapt them to our way of trading in this market world. See them as a possible template.
- Market conditions - volatility, ranging, trending up, trending down, etc;
- Money Management/risk and position value;
- Date and time of open trade (and why);
- Time frame used to trigger entry;
- Entry price
- Long/short (and why);
- Stop loss (and why);
- Take profit/target (and why);
- How the trade evolved;
- Date and time of close trade (and why);
- How long the trade existed;
- Close price;
- Profit or loss value (also/or in pips);
- Inicial and ending equitity/balance;
- Some pertinent notes about the trade.
Other useful data
- Image charts with all possible information (indicator values, lines, etc);
- To where goes the price after closing the trade;
- Psicological factors (how i fell today ?);
- Edges factors;
- Strongness factors;
- Weakness factors;
- Fundamental news and at what time they get out;
- How other correlated pairs are running;
- Used strategy or setup;
- Personal trade classification;
- Holding time;
- Other things you may find useful to do the trade review at later time.
What a trading journal can show us
Filling the trade journal with all our trading activity we have a place where we can came later to analyse what happened along the time. We must review the trading journal with regularity (daily, weekly or monthly depending on our trading style). With this information we can see where we make mistakes or not, what are our weak aspects as the strong ones and analyse it to avoid the errors, leverage our strong aspects and try to minime the weak ones. There are some aspects we can easily get from a trading journal:
- Winning vs losing trades - Knowing the percentage of winning/losing trades we can know how good is our setup/strategy (suposing we are trading with it and stick with it). As a traders we expect to have a larger number of winning trades than the losing ones. Having less winning trades don't mean we are unprofitable if we can win the right ones, but having a greater percentage of winners surely helps up to be profitable. If that don't happen, maybe we need to reevaluate our strategy/setup.
- Short vs Long trades - With this information and market conditions we can see if we are trading with the trend or against it. Also we can see if we are overtrading in a ranging market for example. That don't mean we cannot trade in ranging markets or against the trend, but we can see if we are sucessful or not in this type of conditions.
- Timing of winning vs losing trades - Joining this information with market situation and where the price goes after the trade is closed we can know if we don't let the winning trades run or if we let run the losing ones more time than needed. In this second situation we are losing in two ways: money and time needed to find other profitable trades. Also with this information we possibly need to adjust our take profit or stop loss.
- Sequence of winning vs losing trades - This knowledge can show us when we must stop trading if we are running in a bad sequence of trades with loss. Also, we can see our exit point after a winning sequence of trades to save our profits prom possible losses later not entering in loss trades. Don't be greedy and don't got revenge sentiments, surely you lose!
- Timing of trades - It's important to know also this with the trade evolution information. If we stay to long without exiting and leting the winner trades became loser trades we are losing our time and most important, our money. We must know how to preserve at maximum our work tool, the money. Without it, we can't trade at all. Exit points are so important as entry points.
- Average winning/loss (in value/pips) - With this information we get a fast scenario of our trading activity. With it we can see if we need to adjust stop loss or take profit if we have a greater loss average value. When we get a greater value in loss average than in winning average consistently we are certanly running for disaster. This happening say us that we need to reevaluate our strategy/setup.
- Large drawdowns ocurred before returning to profitability - This can help us to understand what to expect from our strategy/setup. Also we can analyse in what conditions we have the largest losses and try to avoid them later, changing our strategy/setup to take in consideration this conditions.
- Psicological factors - If we document them in our trades, we can have a better understand about ourself. With this you can determine if you are in a good or bad moment to trade based on your psicologic state. Also you can know what you have to do to avoid some of the weakness factors and try to leverage the strongness factors.
- Account evolution - One of the most important aspects is our account monetary evolution along the time.
The list of things you can know with your trading journal can be endless. The trading journal can help you in your path as trader, showing you your mistakes, weakness, strongness and also helps you with discipline if you use it with frequency to review your trades. Also, the trading journal can say us what to or not to do, helping us to follow in the right way.
Our broker, in this case Dukascopy, can help us to build our trading journal because he maintains a record of our trades and we can access them in our account information page. We can save this information to a spreadsheet or export it to csv file and after integrate it in a database for example. Of corse we need to complete this information with the aditional fields we need in our trading journal, but this way we have part of the work done. Fortunately in Dukascopy Trader and Strategy Contest we have the traders blog, that is some sort of trading journal that is useful to us as simple trading journal.
I hope you enjoy this article and find some useful information in it. As usual you can comment here or send me a private message.
Trade well and good luck!