Creating and Maintaining a Traders Journal/Log
In order to maintain a trading plan it is very important to create and keep a trading log. In it, a trader keeps notes and information about each trade they execute.
The main pieces of information one needs to record in the journal are a time stamp of the trade, what was the position (currency pair and size), and direction. Then one should include a brief description of the reason that the trade was opened. The main tools that one uses should already be described within a trading plan, and in the trader’s journal a trader is noting which tools out of the trading plan he or she is using for this trade.
Let’s say a trader is using triple moving average crossovers to generate trading signals. When the trading plan produces a sell signal he would record in his trading journal that he entered a Forex trade on a certain pair, EUR/USD, short at price 1.2510 because of a bearish crossover and he is waiting for a bullish crossover to appear in order to close the position. A note on how much risk one is willing to tolerate if the pair heads in the opposite direction should also be present.
Recording When One Does Not Follow The Trading Plan
If a trader lacks discipline in implementing his or her trading strategy there is a chance that he or she may exit a position too early. If something unexpected happens and a position starts going negative, a trader may start feeling the emotion of fear and close the position prematurely only to watch it take off afterwards. This is a very frustrating experience.
Another bad scenario is one in which a trader does not exit his or her position at a predetermined exit signal, because the trader cherry picked the trade and thinks it will continue to go higher. Even though the initial analysis was correct and the position reached its profit level, the market may turn in the opposite direction and go against the trader. Since this trade was a winner before, one may get greedy and decide to wait until it gets back to its previous point. If the position goes substantially against the trader, he or she may find themselves with a losing trade when it should have been a winner.
Trades that go for losses and times when one does not follow his or her trading plan are two of the most important things that a trader should record in a trader’s journal. Until a trader masters his or her emotions, it will be difficult to think clearly when trading. But, if one reports what happened, later on he or she can go back and sit down and analyze what went wrong and try to get some positive experience out of what happened. The trader has already paid for this lesson that the market gave; so it’s good to now learn from it.
As a beginning trader one has to evaluate each losing trade. One has to sit down and try to understand why that trade turned negative. Was it emotions? Did the trader not accurately follow his or her trading plan for that trade? Or, was it one of those negative trades that is a normal part of a trading approach? Answering these questions will help one to better control oneself with each successive trade and put one on the path to planning for long term survival in the Forex market.