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.
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.
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.
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.
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 lived 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.
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 at 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.
Next, let’s dive into how to make a trading journal (before, during and after the trade)…
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.
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 a forex trading journal:
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).
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 optimise your forex trading journal to achieve that:
- Divide your trading setups into its respective categories
- Write the setups and the timeframe of it
An example on how to make trading journal (before the trade):
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)
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
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 on how to make trading journal (during and after the trade):
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:
Entry timeframe chart:
Chart when the trade is over:
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.
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.
- Identify patterns that lead to your losses
- Identify patterns that lead to your winners
- Find ways to minimize your losses
- 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.
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.
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).
4. Find ways to maximize your gains
Do you want to take your trading up another level?
Then you must learn how to maximize your gains.
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?
But at this point…
What if you’ve done everything yet you’re still a losing trader?
- You created a simple trading journal
- You screenshot your trades before, during, and after religiously
- You discard setups that makes you lose money
Yet you’re still losing money consistently.
What should you do?
Why is this happening?
Let me tell you in the next section.
Why You Are Still Losing Money Even With A Trading Journal
When it comes to money, you often hear things like:
“Money is the root of all evil”
“Money can’t buy you happiness”
“You can’t bring money to heaven”
And other things.
But the truth is that money makes you more of who you are; money is neutral, an amplifier.
So when you start experiencing financial problems…
Money sometimes isn’t the problem itself, but your money habits.
It’s the same with having a trading journal…
When you’re experiencing consistent losses…
Your trading journal itself sometimes isn’t the problem but your trading habits and multiple factors such your:
Let me explain…
1. Trading psychology
When you’re losing consistently despite having a trading journal, this should be the very first thing you should be tackling.
Having issues with your trading psychology basically means that your actions starts being dictated by your emotions.
Therefore producing consistent bad trading habits:
- Adding into a loss
- Holding into a big loss
- Taking trades too early by breaking your rules (fear of missing out)
- Immediately hopping strategies (lack of confidence)
- Overtrading by taking trades outside your rules (impatience)
Now, I won’t say stuff like:
“Trade like a sniper, not a machine gunner!”
“Think long-term and let your edge play out!”
Because I’m not here to motivate you but to guide you.
So, to dispel most of the trading habits you are producing, one thing I suggest is for you to…
Withdraw half of your account
For example, you have a $1,000 trading account.
If you think that you are consistently producing bad trading habits from that account then I suggest you withdraw half of it.
Because reducing your account in half almost immediately reduces your attachment towards money.
Therefore helping you think objectively by attaching yourself to the process.
So, what do you do with the money you withdrew?
Why don’t spend it of course!
Now’s not the time to buy a new Playstation 5.
Instead, deposit your funds back slowly as you gain consistency with your actions every month or quarter.
2. Risk management
If you’ve lost or gained 50% of your trading account with just 5 trades…
You literally have no risk management in place and you’re treating trading as gambling.
I’m not going to lie to you…
I’ve been through this as well.
Making a lot of money in a few trades only to give those profits back to the markets just as fast as I made them.
I know how it feels like.
It was a major problem.
I’ve met traders who think that this isn’t a problem at all and that they enjoy it!
So, which side are you on?
If you believe and enjoy “jackpot” trades by betting it all in one trade, then the casino might be the right place for you instead of the financial markets.
But if you’re in this for the long-term and believe in achieving small losses but consistent gains then…
Risk 1-2% of your account and apply position sizing
Here’s the main objective:
When your stop loss price is hit, you won’t lose more than 1-2% of your account.
That’s right, you know when to exit when you’re wrong and exactly know how much you’re going to lose before you enter the trade.
Unfortunately, applying position sizing can depend on what markets you trade.
Fortunately, there are a lot of position sizing calculators readily available!
So if you trade the Forex market, I suggest you check out MyfxBook’s position size calculator here.
Finally, if you trade stocks, I suggest you check out InvestmentU’s stock position size calculator here.
At this point you’re probably wondering:
“Should we risk 1% or 2% of our account per trade?”
To be honest, it depends on the trader itself.
But the concept is this:
- The bigger your trading account is relative to your net worth and/or you trade the lower timeframes, the less you could risk per trade (below 1%)
- The smaller your trading account is relative to your net worth and/or you trade the higher timeframes, the more you could risk per trade (above 1%)
Sounds cool, right?
3. Trading strategy
This should be the last thing you should think about improving when you are losing consistently.
Because if you try making tweaks with your trading strategy but your trading psychology is whack then no strategy in the world can help you.
At the same time…
If your trading psychology and risk management is on-point but you don’t have a consistent trading psychology…
Then you’re going to experience death by a thousand cuts as you don’t have an edge in the markets.
Now, I won’t be going through how you can make tweaks and improve your trading strategy using your trading journal, because that’s what you’ve exactly learned in the previous sections.
But always keep in mind…
That your trading psychology and risk management problems is something your trading journal may not be able to see.
You must tackle them in order before you try tackling your trading strategy.
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…
This is a free word processing tool by Google. You can use it to write down your thoughts and analysis of the markets.
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.
This is a free image editing tool by Microsoft. You can use it to edit your charts and add any annotations if needed.
This is paid screen capture tool by Techsmith. You can use it to save your charts, edit your images, and annotate with ease.
Bonus tip: Look out for brokers with this special feature
Now before you scramble to get everything in place for your trading journal…
Check if your broker’s trading platform has an integrated trading journal.
It’ll contain the full details of your trading history.
So all you’ll need to do is to just:
- Take a screenshot of your trades before and after entry – so you’ll have a visual reference
- Write down the trading setups of the trades – to reflect on your thought process
And one more thing I want to share is this:
Some brokers have an in-built performance tracker that comes with your trading history.
That’s where you’ll get to see:
- Your win rate & risk to reward at a glance
- Your best and worst-performing instruments
- Your performance based on trade duration
- Interesting stats like the best months, days of the week or even time to trade according to your trading history
That pretty much saves you all the trouble, isn’t it?
Frequently asked questions
#1: Hey Rayner, isn’t it time-consuming to capture screenshots and reasons for my trades if I’m a scalper? Is a trading journal more suitable for swing trading or long term trading instead?
Yes, I agree, a trading journal is more suitable for traders who are trading on the higher timeframes like the 15-minute timeframe and above.
For scalpers, you could record key metrics like your trading setups, your P&L for the day, and how you were feeling during your trading session.
#2: Hey Rayner, are there any apps or software that you currently use to jot down your trades?
I pretty much use Excel to jot down my trades.
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.
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.