At the present time of high technology, when almost every broker provides a detailed history of your transactions, maintaining a trading journal may seem like a pointless exercise. The broker is able to provide complete information on each transaction, including data on the balance sheet, use of margin, profit and loss. Nevertheless, there are certain benefits of independent trading magazines, which we will talk about in this article.
1. X injury historical data
The trade journal provides complete information about past trading operations. It not only reflects the summary information on transactions but also allows you to quickly determine the status of the trading account at the time of the transaction and the impact of transactions on the balance over a certain period of time. In other words, a trade journal is a personal database of your personal performance indicators, which allows you to determine the frequency and profitability of your trading operations, the set of the most successfully used currency pairs and the best time periods for trading. Conducting a journal greatly simplifies analytical studies of the trading activities of the trader.
2. Planning tool
In the trade journal, it is necessary to record not only the actual results of trading activities but also trading plans for each of the transactions. This allows the trader to pre-determine the entry point, the level of accepted risk, the target profit and possible adjustment of the position in case of a change in the market situation. In other words, the trader’s thoughts turn into specific numbers recorded in the trading journal, which can subsequently be used in practical trading. A trade journal is the basis of trade planning and the formation of a clear trading plan.
3. Checking the effectiveness of the strategy used.
Keeping a trading journal allows traders to check the effectiveness of the strategy used on their own data. Trader canto evaluate, based on historical data, the effectiveness of their own system in case of changing market conditions and answer the questions: “How does my system behave in a directed market, in a side market, at different time periods? How does it affect trading decisions and stop-loss placement? Is the choice of stop-loss correct? ”A trading journal should contain comprehensive information about the trading activity of the trader in order to be able to conduct the most thorough analysis.
4. A way to correct habits
One of the most important advantages of maintaining a trading journal is the ability to analyze your own patterns of behavior and transform destructive habits into constructive ones. Since, thanks to the magazine, trading is carried out in accordance with a certain plan, the trader gains confidence in the correctness of his own actions. Profitable transactions cease to be random, and “planned” losses do not allow you to feel like a failure and reduce psychological pressure. Self-confidence is an extremely important psychological factor. and allows you to get rid of the greed and fear inherent in all human beings. As a rule, if a trader starts earning, he wants to earn even more; if it loses, it experiences fear and panic as the balance in the account decreases. Using a trade journal allows you to create a trading plan and track the correctness of its implementation, which, in the end, positively affects the professional development of the trader. A good trading magazine will become your best friend and mentor on the path to success in the conditions of market volatility.
The trading journal should consist of two parts
When maintaining a trading journal, it is recommended to adhere to two basic rules:
- Information on trading operations is recorded in the form of a table, the rows of which are filled from top to bottom in chronological order. All trading operations and all related data must be entered in the table. You can use Excel tables, which will automatically calculate the final results and carry out mathematical calculations, which will help get rid of algebraic errors.
- It is necessary to put entry points on the price chart, as well as a stop loss and profit levels. You must also indicate the reasons that prompted you to open this position. Keep charts with the following information:
- Fundamental reasons. Example: “I believe that the dollar will continue to weaken due to the Fed’s policy of keeping rates below the level of other countries and the presence of a trade deficit.”
- Technical reasons. Example: “The dollar has reached a resistance level, so there was a great opportunity to take a short position.”
- Psychological reasons. Example: “Traders avoid risks associated with possible corrections, and the US economy is not in good shape, as evidenced by GDP data and weak job creation reports.”
Leave comments on printouts of price charts. It is recommended to use separate trading journals for each applied trading strategy. Do not mix data from various trading systems in one journal, as this increases the number of variables and complicates the general analysis of the results.
After accumulating data on 20 or more trading operations conducted within the framework of one trading system, a trader can calculate the mathematical expectation and reliability of the trading system:
|E = [1+ ( W / L)] x P – 1 W = average profit on winning trades L = average loss on losing trades P = percentage of profitable trades Example: If according to the results of 10 trading operations, 6 of them turned out to be profitable, the percentage of profitable transactions will be 60% (6/10). If the total profit on winning trades is $ 2,400, the average profit on winning trades is 2,400 / 6 = $ 400. If the loss was $ 1,200, the average loss on losing trades is $ 1,200 / 4 = $ 300. Substituting these values in the formula, we obtain the result: E = [1+ (400/300)] x 0.6 – 1 = 0.40 or 40%. A positive mathematical expectation of the system, equal to 40%, means that the trader will earn in the long term 40 cents for every dollar invested.|
A trader can feel confident if he clearly knows the profitability of his trading system. If he lacks confidence, he is not able to carry out trading operations in accordance with established plans and cannot make the right trading decisions due to the excessive flow of analytical data. Keeping a trading journal significantly reduces the burden on the trader and contributes to future profitable trading (to increase the amount of potential profit, the trader can use leverage.