So, you heard about how lucrative Forex trading can be and spent the past month making your first handful of transactions.
But, you have yet to make any gains and have no idea what has gone wrong. You likely lack an essential tool that many successful traders depend on - a trading journal.
You scoff at the idea of jotting your most private thoughts into a scented notebook. However, a trading journal serves important purposes that your childhood diary does not.
Here are five reasons you need a trading journal if you aspire to be a successful forex trader.
Identify market trends and patterns
Establishing a detailed and accurate record of all your trading activities is essential to provide a quick overview of your transactions.
It offers a historical perspective to gauge the effectiveness of your trading approach. Notes and charts also reveal how certain market trends impact your trading results.
You can then use the data to spot future opportunities and ride the wave up to bigger gains.
Journal tip #1
Decide whether you want to go the traditional route and use a pen and book, or go high-tech with a spreadsheet. You also can use trading journal apps such as TraderSync, AntSignals, Tradervue, and Edgewonk.
Finetune trading strategies
The more you trade, the more challenging it is to keep track of your transactions and progress.
Maintaining detailed records of your past trades allows you to determine if a particular trading strategy has yielded high gains or resulted in losses.
It provides important insights you need to assess the effectiveness of that trading plan. It surfaces mistakes and flaws you then can work to resolve. It also allows you to continually fine-tune a trading strategy to produce better results.
And if you rather not test new trading strategies with your hard-earned money, why not try out demo accounts? These are great for beginners as well as traders who want to test-run a trading strategy in a live market without providing any capital.
Journal tip #2
Identify key data points you need to track. These should include the date and time of transaction, traded instrument, position size, and result of the trade after closing.
Keep emotions in check
Because it provides hard data, a trading journal will prove especially crucial when you are feeling emotional after a tumultuous trading day.
It encourages you to see things objectively. It also clears any doubts you may have about your trading strategy.
It stops you from losing patience and making bad decisions, particularly when your trades do not pan out.
A data-driven journal also forces you to analyze your own behaviour patterns and address any shortcomings.
Journal tip #3
Some additional data fields can also be useful, such as reasons you traded, price charts, and market commentaries that you found helpful.
Stay on the planned path
Discipline is a crucial trait all forex traders should have. It keeps them on the path laid out in their trading strategy.
A journal establishes accountability and records every decision they make. It will reveal if they stuck to the plan or strayed under pressure.
This motivates traders to stay on track. It serves as a useful reminder that they should not act on impulse.
Journal tip #4
Make it a habit to input your journal entry the second you make a trade. Then take the time to review your data points and establish patterns of losing trades. This helps identify mistakes, so you can avoid making the same errors in the future.
True mirror of weaknesses and strengths
Numbers and statistics do not lie.
As it maintains a record of your successes and failures, a trading journal offers valuable insights into your strengths and weaknesses as a trader.
You can use these to validate good trading tactics and correct flawed moves..
Because it forces you to be accountable for all your trading decisions, you also will work to elevate your trading proficiency.
A journal helps you cultivate more effective trading skills and achieve higher gains.
Journal tip #5
Apart from trading mistakes, review your data points for missed opportunities. These can be just as costly. Learning from your past oversights can go a long way in growing your future trading pot.
Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.