Using a Journal to Optimize Your Trading

We've talked before about creating a forex trading journal, and how it's an important tool for successful traders. How is a diary different from the registry in your platform, and what are some tips on how to get the most out of it?

Myth: journals are for newbies

While it's true that journals are a great tool to get a handle of your trades, find out what strategies aren't working and which are; as traders gain more experience, they typically will find their journals are an increasingly integral part of their trading.

The markets are dynamic, and there is no single, surefire way to always make a profit, so traders have to be honing their skills and making improvements constantly. While newbies typically make more improvements and they gain experience, we can all use a bit of review and feedback on our trades. Enter, the journal.

It's all about optimization

There are three steps to good trading and trading optimization: 1) Have a trading plan, 2) Follow the plan, 3) Make sure you follow the plan. It's said often, but it bears repetition to drive the point home: problems with the trading system are usually not the cause of poor performance, but rather the inability/difficulty to follow the rules you set for yourself in the plan.

The journal should record your trades, and the conditions of the trade, so you can go back and make sure that it was entered and closed according to your trading plan. You can't say your trading plan is bad if you don't follow it at least the vast majority of your trades. And you need a record of your trades and the conditions of the trades to be able to review and count them.

Be thorough and honest

No one is going to see your trade journal unless you show it; this is a tool you use for yourself, so making sure every trade is recorded properly and you're honest about why you entered the trade and why you closed the trade is very useful to yourself to know what's going on with your trading.

The trading journal is often the most important of the least talked about tools for successful trading, because it can be boring and requires a certain amount of discipline and will power to not just put in the good trades, but the bad ones. Then after a period of time, check back to see what went wrong and how to improve. The conclusions you get are things that no mentor, book, or seminar can really teach you, because it's a matter of self-analysis of your own trading psychology.

A journal is more than a record

Your trading platform keeps the most accurate record of each trade's execution; what the journal does is give you insight into what you were doing and thinking at the time of trading. Start your journal before trading, specify what you are looking for in the market, why you entered a particular trade, what you expected from the trade, and even your emotions at the time. Do the same when you close: did it stop out? Did it reach its take profit? Did you close out because you were worried it was going the wrong way? Because there was news coming up?

Even things that aren't related to your trading can give you insight; did you leave a trade open because you got distracted watching a video on YouTube/reading the news? Did you make a mistake because you started trading before you had your morning coffee? That's useful for figuring out how to improve your trading.

Give it time

A few hours or even a few days of trading won't give you enough data points; check back after a month, or two. If you are good at trading, you'll be at it for years, so check back in a year or two. The more data points you go over, the more you can see your pattern.

Trading is all about patterns, both in the markets and in yourself. If you can identify the patterns in your own trading, you can optimize yourself for the markets.