Describing the components of a trading journal
Part of trading is learning from your mistakes and not repeating them. This is why a trading diary is something all traders should have in their toolkit. By being able to look back at the market and at your decision to enter or exit a trade, you’ll be able to find where you might’ve gone wrong, but also when you got it right.
How should you go about creating your personal trading diary? You have to look at the purpose of the diary and translate it into the contents: It should describe the decision for entering the trade – a technical level or a gut feeling. It should cover the components of a trade – its date, time, direction. They may seem unimportant but could reveal systematic mistakes later on. And finally the diary should provide a look into your thoughts at the moment of trading – how you interpret the raw data and why you’re acting on it.
Here are the specific items/columns that we recommend you include:
- Date – A no-brainer
- Time – Useful if you’re day trading, or if you’re using pending orders
- Entry/exit – One trade won’t equal one row of information, you have to describe the entry and the exit. There might also be times when you partially exit a trade, or increase another that have to be noted
- Instrument – Another must have. Use it as a filter later on to see where you’re winning and losing. Beginners will usually test more instruments when they start, but professionals usually stick to two or three for long periods of time
- Direction – A buy or a sell. You might find that your success rate and consequently your prediction skills are better suited to one of the two
- Order type – The vast majority of trades fall within the simple buy and sell, but there are many other types of orders that might be used. If you do employ them, or you’re mixing it up, then you should definitely note it
- Price – The price at which your order was executed. Can also be used for future reference as a proven point of entry, or as a bad one
- Quantity – Money management is crucial in trading, so keep track of how much you invest
- Stop Loss & Take Profit – You can choose to write them as a distance from the entry price and check how often they’re executed
- Indicators – If you use one or more indicators for decision making, then their levels might be used as proof of their validity
- Comments – Not all trades need additional explanation if they’re based on technical analysis, but additional comments, even for them, can be extremely valuable and reveal your actual decision-making process
Spreadsheet programs are suitable for creating your trading diary and can be customized easily for arranging and connecting the different data sets. This is your personal sample and you won’t find one that’s more relevant, so look at it from all possible angles.
In any case, a journal is something that can never harm your trading. It’s a constant learning process and having a clear, unbiased record of your slumps and jumps can give you that much desired edge over the markets.
Do you agree with the way we’ve set up our trading diary? Let us know if you’re doing it differently.