Running a journal as you're learning to trade is equally important to your development as a trader, as
much as any strategy that you may be using. However, there are a number of misconceptions about what a trading journal actually is. Many people seem to think that a trading journal is equivalent to your trading plan. To dispel this myth, I've decided to do two separate lessons, one on journaling and another on the creation of your weekly trading plan. So, this time let's look at exactly what should go into your journal and why it's important to do it while you're developing as a trader.
Running a trading journal has several functions: to have a historical record of your trading, like a trading log, but also a record of your emotional states. It also helps to keep track of your actual trades taken. What time of day did you open the trade and what was the outcome? It's also helpful to have a journal to forward test your strategies, and it's also a tool that helps you with your own behavior modification and changing your habits deliberately.
You will need to break the journal down into two sections. The first section will be all about actual trades that you took. The first part helps with factual record-keeping of your trading.
Stuff like the date of the trade, the time of day that you took the trade, the price entry, the number of pips used for a stop, what was your intended profit target? What was your actual profit? Where did you take it? The percentage of equity used, whether the trade was a win or a loss if you had a loss. And of course, trade duration as well. Trade duration is important to make sure you don't let your trades run too long. So think back to that maximum duration rule for your exits. The longer it takes for the trade to reach your target, the less likely it is that your trade will work out. I have a time-based cutoff, even for my intraday trades, but if I took a setup from a daily chart, I may allow anywhere from three to a maximum of five days for the trade to work out. Obviously, depending on what kind of stop loss I used and a bunch of other things.
But if I took a setup from a 30-minute chart, then the maximum trade time is usually around three hours these days. Of course, you should also note in your journal what your setup was, reasons for taking your trade, and exactly what you were looking at when you were coming up with the idea for the trade. In the case of my strategy, it will be supply and demand zone Q point price action pattern. Okay. Further down in the program, you may include market profile, TPO profile structure. This is an example of what a trading journal should look like.
As you can see, all of this is the first section, the factual details on the trades. We have entry date and entry time instrument. Long or short, what was the entry price? Where was your stop, where was your target risk, exit price, and a whole bunch of other things.
So a factual account of what you actually traded and how did it go. Then you have the second section, which is more of a diary-style entry where you explain in detail how you felt, what went wrong, if something went wrong, and what could be improved. So even if I've had a successful trade, I will still try to do a little bit of introspection to see whether there was something that I could have done better. So let's take a look at this emotional state section. Now that you know how big a part psychology plays in trading, you have to start tracking your emotional state, your self-limiting beliefs, and negative thoughts, negative internal dialogue. You need to start working on slowly getting rid of your gremlins one by one, not all at once. You also need to note any mistakes that you might've done, such as jumping in too early.
Maybe you read the price pattern wrong, maybe you didn't wait for the candle to close. So all of the stuff that might imply impulsive trading, it needs to go into your journal so that you know what you need to work on. Some of the issues that I have come across quite frequently with people is taking trades off too soon. So, and twitchy fingers. I would have a trader that would identify an area. They would get the trade entry. They would enter a trade, and then they would take 10 pips and close the trade because they thought they saw something and then the trade goes straight to their profit target and they want to tear their hair out because they weren't in on it. So twitchy fingers or twitchy mind would be a more accurate description, is something that you need to work on. This is the kind of entry that should go into your journal. So this is the level of detail you need. Trade number one was taken from a setup as shown to the right. Typically, I like to have a chart showing the setup too, q low area on the daily chart and a four-hour strong demand zone nested inside of it. At the beginning of the day, I was feeling quite calm, but as the price neared my limit order entry, I began to feel nervous and unsure of the setup. So you explain your emotional state in-depth. When the trade triggered, it went into some drawdown and I began experiencing fear. I then decided to leave the trading desk and go do some weightlifting, disrupting emotion with exercise. When I came back, I was able to rationally look at the setup probability and decided that I have no problem with the way I came up with the trading idea.
See, this is also important. If you have a trade that doesn't work out, but you came to the trading idea using a very rational, factual, systematic process, you shouldn't worry about your trade getting hit because you will get better in that particular skill. Your directional reading will be better, your price pattern readings will get better, and then you just optimize what you have carrying on. During the New York session, I noticed an initial balance extension to the upside and the rejection of the value area. The trade then shot up and finally reached a four to one risk-reward. However, it then started to consolidate and I hesitated taking half of the position at four to one risk-reward and the price retraced to three to one, at which point I took the whole trade off. So this trader is explaining that their trade went in their favor, but that they waited too long to take the profit, but they still made the right call.
When the price went down to three to one, they decided to take it and not just wait to see whether it's going to come back. Now this particular trader has issues taking profits, so he is the other way around, doesn't have twitchy fingers, but instead doesn't want to take profits. So what we worked on is him taking half of the position off and then waiting. But in this case, he was actually hesitating to take the position, clip it off in half for whatever reason, but then came to his senses when the whole position retraced to three to one. And then this final section, he explains, next time I'll try to take half off at four times the risk. I must make myself take profits. This is my task for next week. Now, if you have all of this textual information about when, how, and why, a lot of people will actually forget what the setup looks like.
So I ask all beginner traders to put a picture of actual setups. I myself, I will admit that I never really did that because I have an eidetic memory, so it's one of my superpowers, and I'm able to recall the day and the setup in my mind in great detail without the need to have any additional charts because I can see them in my head. However, back in the days when I was still quite active on Forex Factory, I needed to post a snapshot of the setup that I was looking at. So for that, I started to use a tool called Jing, which is free and it's made by this company called TechSmith. Now, eventually, I went and bought Snagit, which is kind of like a better version of it, but I think Jing is still free. So I've set up a hotkey for this.
So if I press Ctrl J, it kicks off this little crosshair. So any part of the chart or a screen that I drag this region on, it basically gives me a very quick snapshot and then I can draw on it, I can make comments and all of that. So it's a very quick tool if you need to explain the setup to someone. Okay, so that is the company that makes it, like I said, I have Snagit, which is a paid-for version, a better version of Jing. Alright, so back to the diary example. Once you have some journaling over a course of about two to three months, you will then slowly begin to notice patterns of good and bad behavior. The bad behavior needs to be dealt with systematically. So for example, if you're constantly going in with a larger position after your first trade loses and you use a ridiculous amount of equity to try and get your cash back, then perhaps you want to note down that behavior in your journal and actively, objectively monitor your emotional triggers that lead to this behavior.
You would then spend a number of weeks focusing on not doing that and making sure you control yourself. So for example, you could set yourself a task that if you take a loss, you have to wait a certain period of time, at least two to three hours, sometimes even the next day. It will not be an overnight success because like any skill, any self-control, any self-discipline, it needs to be practiced and then that particular skill becomes stronger. Too many inexperienced traders never want to deal with the uncomfortable truths of their own behaviors. Usually, they trade themselves out of their accounts pretty quickly and well before they come to the conclusion that behavior modification is the correct path. What I'm attempting to do here with all of my market stalkers is to get ahead of the game to reach the emotional intelligence required to do this job successfully. Alright, so somewhere on this page, you will find a link to the trading journal spreadsheet that will help with starting your trading journal the right way. And this is it for journaling.
