People who become successful trading in financial markets have a pretty rewarding lifestyle. However, they didn’t earn their trading skills overnight. Professional traders build a trading plan that evolves over time — a plan that’s constantly adjusted based on the expertise the trader has earned through real-world experience.
The best tool you can use to capture and learn from your own trading experience is a trading journal.
A trading journal gives you a way to give yourself an assessment from time to time, tweaking your strategies and risk-management efforts as trends in your trading habits emerge. But, what exactly is a trading journal and how do you incorporate it into your day-to-day trading activities?
What Is a Trading Journal?
A trading journal is a tool traders use to track their performance and the factors that led to their decisions and trades. Traders often use the journal to learn from their experience and make adjustments to their strategies and habits as necessary.
You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access
A wide range of market participants use trading journals, from day traders to swing traders to forex traders. To build a trading journal, you simply record a range of data from your trading activity, including details like when you made trades, the triggers that caused you to enter and exit the position, and the performance of the trade.
Traders build these journals using a wide range of methods, including pen and pad, Excel or Google spreadsheets, or free or paid software. More on these options later.
Why You Should Keep a Trading Journal
Beginners and successful traders alike can become better traders by tracking their trading history. When traders track every move they make and review those moves, trends in their trading style will likely emerge.
Some of those trends are positive, but some are negative.
Some of the most successful traders read over their trading journals regularly in an effort to define these trends. When they identify a positive trend, they adjust their trading plan to incorporate more of whatever led to those results. Conversely, if they spot a negative trend, traders can make a conscious effort to avoid making similar mistakes in the future.
How to Create & Use a Trading Journal
Some may find the concept of a trading journal cumbersome at first, but over time they realize it’s far easier than they thought. Below, you’ll find an easy-to-follow guide that outlines how to build and use your trading journal.
1. Choose a Format
Trading journals are generally created in one of three different formats:
Excel & Google Spreadsheets
Excel and Google spreadsheets are some of the most commonly used methods for creating trading journals because they make it easy for traders to organize the data they find most important.
Traders typically enter their most important data as column titles, creating a new row for each trade.
Some traders prefer to use written books to record their activities. Not being confined to a spreadsheet field lets trades go into greater detail, with many including notes about their emotional levels and market conditions at the time of the trade.
Trading Journal Software
You also have the option of using trading journal software that does the leg work for you. There are several such programs to choose from, with some of the most popular being:
- TradeBench. TradeBench is a completely free trading journal software. Unlike much of its competition, there’s no paid subscription on the platform, thus no reason for tiered membership that locks some users out of some features completely. The company took an advertising approach to income, making providing free services to end users possible.
- TradesViz. TradesViz is an automated trading journal you can access for free. To unlock all features, however, you’ll have to pay $29.99 per month ($22.49 per month if you choose an annual plan). You may find the cost is worth it, with added tools that make it easier to understand trends in your trading process.
2. Write Down the Information You Want to Track
If you choose to use an automated trading journal like those mentioned above, the information will be tracked for you. However, if you’re taking the hands-on approach with a spreadsheet or written book, it’s important that you track the right information.
There are bits of information that fall into the must-have category, but there’s other optional information you may want to track to give you a deeper understanding of your trades.
The information every trader needs to have in their trading journal includes:
- Asset. You’ll want to start by tracking the asset names you decide to trade.
- Trade Setups. Trade setups are the basic conditions that need to be met in order for the trader to dive into an opportunity. These setups include data like percentage gains or losses over specific time frames, distance from support or resistance, or the crossing of moving averages.
- Entry Points. The entry point of a trade is the price you paid to open it. This information will help you determine the performance of the trade later.
- Exit Points. Exit points are the prices at which you exit your positions. Subtracting the entry point from the exit point results in the trade’s profit or loss per share.
- Order Type. Many traders use a range of order types when taking advantage of an opportunity. Keep track of each order type you use and, if they’re special order types, whether they were triggered.
- Time Frames. You’ll likely find that the length of time the trade was open plays a role in its performance. In most cases, long-term trades tend to be more successful, but traders with strong technical analysis skills may find that taking bigger risks on shorter-term trades pays off in the long run.
- Position Size. Position sizes also play an important role in your success. Small positions may leave you underexposed to gains, whereas larger positions may leave you overexposed to risk. Over time, tracking the size of your trades will help you determine a happy medium at which you’re most comfortable with the risk-reward profile for each trade.
- Price Action. You want to track entry and exit points, but you should also track what happened between the two. Could you have made or lost more money on the trade? The only way to tell is to analyze what happened in the middle of the trade. Track the high points and low points the assets reach while each trade is open to see if you’re making the most of your trades.
- Trading Performance. Finally, you’ll need to keep track of the results of the trade. By analyzing both the best and worst trades you make, you’ll likely find trends in what made the winners and losers, helping to improve your performance in the long run.
Optional Info for a Deeper Dive
Some traders find it useful to take a deeper dive into the past when attempting to improve their future performance. Here are some other details of your trades you can track to get an even better view of how you’re performing and what you can do to improve:
- Screenshots. Some traders embed screenshots of their trading charts into their spreadsheets for future analysis. Doing so allows you to dive deeper into the trading setup, why the trade was closed, and what signals can be adjusted to lead to better overall performance.
- Fundamentals. Traders who mix technical and fundamental analysis often realize improved performance. Tracking fundamental data like analyst opinion, price-to-earnings ratios, and upcoming events can help you understand why a stock moved the way it did. Finding trends in fundamental data that correlate with positive or negative results can make you a better trader.
- Trading Platform. Each trading platform comes with its own set of tools and features that often mean the difference between success and failure. Some traders use different trading platforms for different purposes. Tracking the trading platform you used on each trade could show you which platforms you’re most successful using.
- Market Conditions. Market conditions play a significant role in the day-to-day performance of traders. When you keep track of the overall market and compare its performance to yours, you’ll gain expertise that makes it easier to be successful whether the market is ebbing or flowing.
- Your Emotions. A solid trading plan includes strategies for dealing with emotions that can devastate returns. Some traders find it useful to record their levels of emotion from each trade. Over time, these traders learn when it’s best to take a break from trading until emotions die down.
3. Record Each Trade Promptly
According to Forbes, the human brain has evolved to be more efficient than accurate. The longer you wait to log your trading data, the more likely it is that you’ll make memory-related mistakes.
That’s why it’s best to record your trading data in real-time.
It’s especially important to record your trading data before falling asleep. While you’re sleeping, your brain is organizing itself, often throwing away details it deems unimportant. Although your chances of accurately recording details fade with each passing minute, trades recorded from memory the following day are much more likely to be inaccurate.
4. Review Your Trading Journal Regularly
Building a trading journal is the first step, but you’ll have to read it to really get anything out of it. Take the time to read through your trading journal at least weekly. You might find it useful to get in the habit of reading it nightly before bed.
Regardless of whether you read your journal weekly or more frequently, there’s a strong chance you’ll be able to improve your future returns by analyzing your past performance.
5. Adjust Your Trading Strategy as Needed
As you read your trading journal, pay close attention to the details of the most profitable as well as the most painful trades. Try to find correlations between the trades that led to big profits or losses, and pinpoint factors in your strategy that could be leading to these correlations.
For example, if you find that you’re generally more successful when making swing trades than momentum trades, you may want to focus your efforts on becoming an expert swing trader and leave momentum trading to others who find it more effective.
Trading Journal Example
Below is an example of two entries in a trading journal made using a Google spreadsheet.
|Trade Setup||Bullish Crossover||3X ADV / 3% Intraday Gain|
|Order Types Used||Market Order / Stop Loss Not Triggered||Market Order / Stop Loss Triggered|
|Entrance Date & Time||1/3/2022 9:45 AM||1/3/2022 9:50 AM|
|Exit Date & Time||1/5/2022 10:32 AM||1/3/2022 10:01 AM|
These two trades include one that was a winner and one that was a loser. On the winner, the stop loss was never triggered and the trader exited with a 10% gain. On the loser, the stop loss was triggered and the trader exited with a 0.50% loss.
Both trades have different setups and time frames, which may act as clues to why the trades led to profits and losses.
Trading journals play a major role in a trader’s growth from beginner to expert, and early adoption of such a tool will greatly reduce the learning curve. The key to taking full advantage of the tool is regularly looking back at your trades and determining what factors correlate with positive and negative outcomes.