A trading journal: what to record and how to use it

A trading journal is the cheapest tool available and the most frequently skipped. It will not improve
your entries, but it is the only way to find out where the real problem is.

1. Why memory is not enough

Memory of trading is distorted systematically: you remember the big winners and the losses that had
an external cause clearly, while the losses that came from breaking your own rules fade. After three
months, the picture in your head is a long way from the data.

2. What to record before entering

• Instrument, direction, size.
• The reason for the trade — in one sentence. If you cannot write a clear sentence,
  that is a signal to skip the trade.
• Stop and target levels, with the reasoning behind each.
• The intended risk-reward ratio.
• Your own state — calm, impatient, wanting to win something back. One word is
  enough.

3. What to record after closing

• The result in money and in R (multiples of risk).
• Whether you followed the plan — the most important column, more important than the
  profit or loss.
• If you departed from it: where, and why.
• A chart screenshot at entry and at exit.

4. Four boxes worth separating

The most useful classification splits results on two axes — process followed or not, and profit or
loss:

• Process followed, profit — the outcome you want to repeat.
• Process followed, loss — entirely normal, nothing to fix.
• Process broken, loss — this is the group to work on.
• Process broken, profit — the most dangerous, because it rewards
  the bad habit.

Traders who keep no journal usually cannot tell the second box from the third, and so keep fixing a
strategy that was not broken.

5. Review on a schedule

• Weekly — reread the trades where the process broke and look for what they have in
  common.
• Monthly — the statistics: win rate, average R, total cost, hours, instruments.
• Quarterly — decide whether to keep, change or drop part of the strategy, based on
  the data rather than on feel.

6. What people usually find

After a few months of records, people discover very specific things: all the losses concentrated in
one hour of the day; trades opened straight after a loss performing markedly worse; one instrument
accounting for most of the cost while contributing no profit. Each such finding leads to a simple action
with a large effect.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.