What is a Trading Journal ? (And why you need one)

A trading journal is a record of all your trades. Its main goal is to help you to find patterns in your trades that can improve your performance and avoid mistakes you have made in the past. It gives you more insights into your trading and allows you to make better decisions.

Why do you need a trading journal?

A lot of successful traders have a trading journal. It has become a norm, especially for experts who would like to maximize their profits and master trading. There are multiple reasons why you should have your own trading journal. Here are just a few benefits that should convince you to create your very own trading journal.

1. Identify Weak Points in Your Current Strategy

No matter if you are currently making money, you should ask yourself if your strategy has weak points. Perhaps all your winnings are because of 1 big winner you had. What if you missed it.. would you then still be profitable? Another question might be if you have some bad trading habits which negatively influence your trading results. Questions like this can only be answered if you log & record all your trades and most trading journals can help you to quickly identify any weak points in your strategy

2. Easier to Recreate Success Factors

Avoiding loss is not the only benefit of a trading journal. Another important function of a trading journal is to recreate the factors that generate income through trading. By recording all your trades you can analyze them in groups. Which of your trading setups give the best performance? What are your most profitable hours of the day or on which days of the week you earn the most money?

3. Accountability

Another use of a trading journal is to hold yourself accountable for your trades. You are more likely to treat your trading job as a business when your mistakes are becoming painfully clear and there's no way to hide. You will automatically start to double-check your trade before you enter it to verify if it follows all your trading rules. Because you know that if you don't then your mistake will show up in your trading journal. 

4. Lowering Risk Factors While Testing New Strategies

The more trades you record, the more data you have to try our small experiments. Simple what if I ..... questions can now be answered by analyzing all your historical trades. Instead of guessing what might happen if you make that small change to your strategy you now just can check it. Just by going through your trading journal and check what the results might have been with and without that small change

What to include in a Trading Journal

While you can customize your trading journal to however you feel will benefit you the most, there are basic elements that are used by many to create a more effective trading journal. The following are the 6 main components of a trading journal:

  • Traded instrument
  • Date and time of the trade
  • Entry and exit prices
  • The direction of the trade
  • Position size
  • Result

Of course, there are things you can add to create a more effective trading journal. For example, you can create charts that can easily help you analyze the data you have gathered. You can also record the reason why you took the trades. This method is used by many traders so that they can easily see the pattern of their decision-making skills when it comes to trading. You can choose to include or remove it from your trading journal.

However, the 6 main components of a trading journal mentioned above should always be recorded. These are very important, especially to new traders who are just starting out.

The 6 Main Components of a Trading Journal

While a trading journal can differ from one trader to another, some components should be present in every trading journal. The following are the 6 main components that can help a beginner start out with their trading journey.

1. Traded Instrument

There are multiple types of markets you can trade, and you should take note of what specific instrument you have traded. This allows you to categorize your trades until a pattern emerges of which traded instrument gives you the most profit.

While you may prefer to trade a certain stock, chances are, you might have a good hand in trading with other things. You will never notice it until you have created a trading journal to analyze these things.

2. Date and Time of The Trade

While it may seem trivial to you at first, you cannot fully analyze your data without having a clear record of when your trades took place. This can give you many insights, especially if the market is currently affected by factors in the market.

3. Entry and Exit Prices

As a trader, you should be aware that you can set your own entry and exit prices for your trades. This will help you get a clear plan on your trades.

Entry Price

As the name suggests, this is the price of the stock when you first traded the stocks. This will be your basis if you have gained or lost an income after closing a trade later on.

Stop Loss Exit Price

If the direction of the stock is not favorable to you, it means you have to sell the stock to cut back losses. However, sometimes, a stock recovers soon after and becomes more profitable. The stop loss (SL) price is the loss you can tolerate. Once your stock reaches the price, you should sell your stocks and accept the loss, and not hold on to the stocks.

Take Profit Price

On the other hand, you have to set your take profit or TP level where you will sell your stock so that you can lock in your profit. While a lot of new traders would like to hold on to stocks that seem to be profitable, you should not let your greed take over and manage your investments based on logic. As soon as you reach your desired take profit price, it might be beneficial for you to close the trade so that you can get the profit already.

4. Direction of the Trade

Categorized between long or short, you should write down the direction of your trade. This is an important factor in trading that you should always take note of.

Long Trade

A long trade means you are buying a stock if you think you can sell it a higher price in the future and generate an income. This is the type of trade that beginners are familiar with, but this is not the only direction of trade. That being said, you should take note if your transaction is a long trade to distinguish it from the short trade.

Short Trade

On the other hand, a short trade is selling a stock before buying it, with the intention of repurchasing the stock at a lower price in the future. This might be confusing to new traders, but in stocks, you can sell an asset before buying them, hoping that their prices go down.

5. Position Size

The position size is the number of units you have invested in. Knowing your position size for each trade can help you lower the risks and maximize the returns of your future strategies.

6. Result

Once you have completed the trade, or in other words, executed your entry strategy, then you have a result. This is either a profit or a loss, depending on the results of the trade. Of course, you would like to have more successes than failures, but recording your failures can help you improve as a trader.

 

Additional Information to Include in your trading journal

While the above are the most essential parts of your trading journal, there are other miscellaneous things you can add that will still provide a lot of insight with your current strategies. Please take a look at our top 17 trading metrics to read more about all the trading metrics we think you should record in your trading journal

 

How to Create Your Trading Journal

Now that you know the basic components of a trading journal, you can start creating your own. Creating a trading journal is best done before you start trading, but you can choose to record your data at any point in your trading life.

1. Choose Your Method

There are multiple ways you can create your trading journal. You can use a spreadsheet,  a physical notebook, or an (online) application which basically does everything for you. It depends on what you feel more comfortable in, and what is more accessible to you.

A notebook or spreadsheet is probably the most simple option to start with. You can easily log your trades in excel do some basic analysis on them. However, you will soon start to notice that you begin to miss things. Of course, you can modify your spreadsheet and add those but it will become very complex very soon. Not only are some of the risk/money management formula's pretty complex, creating and maintaining all this in a spreadsheet-like excel is quite some work and not everyone might be able to do that. That's where an online trading journal (like our own 'improve your trade') might be helpful. An online trading journal allows you to just enter your trades and then focus on the analysis part. It already contains everything you could possibly think of and is easy to use. If you want to know more about the differences between a spreadsheet journal and an online trading journal then you can read more about the 2 over here in our Why use a trading journal instead of a spreadsheet journal article

2. Identify the Information You Want to Record

After choosing your journal, you should identify the information you think will help you create a better strategy. It is advisable that you include the 6 main components of a trading journal mentioned above, but you should also add other things that will help you.

You can also add other things that you think will be necessary and create a template for your trading journal. Make sure that you do not overcomplicate things. You should be able to easily identify the data you need at a glance.

3. Record the Trades Immediately

When trading, you should always have your trading journal with you. This is so you can immediately record the transactions as they happen. Putting off recording your data may lead to forgetting to record it altogether, or worse, input things that aren’t accurate.

This is another area where an online trading journal like our own improve your trade excels. If you are using NinjaTrader 8 as a trading platform it will record all your trades with all the trading metrics fully automatically. You just focus on your trading instead of your trading journal. 

4. Revisit Your Trading Journal

During your free time, you examine your trading journal. You don’t have to analyze it in-depth, especially if you have not closed a trade recently. But you should make it your habit to check your trading journal occasionally for a reflection of your past transactions. Revisiting your trading journal will help you familiarize yourself with the numbers and easily realize if a pattern is emerging. It will allow you to spot changes in your trading behavior, your trading performance, your discipline and trade executions, and much more.

5. Analyze the Data

Its good practice to go over your trades at the end of the day. If the trade generated profit, then check for things that you think contributed to the success. On the other hand, if it was a loser, you should check if you followed all your trading rules or if you made some mistake.

Analyzing your data also means you have to update all the charts that you have created. You can also filter your journal to see if there are any patterns that are not obvious at first glance.

The following are a few ways to filter your data.

  • By date– you can check which hours, days or months resulted in the most profit, and if you are improving over time
  • By setup – check which of your setups or strategies are more profitable than others 
  • By asset – check which assets are performing better than others
  • By performance – check how good your entries/exits are compared to the ideal entries/exits.

You should also pinpoint the weak links in your strategy, even if you have gained an income. This method allows you to maximize your profit.

6. Recreate Success Factors

Once you have an idea for what results in a successful trade, you can now recreate the factors. Even though the market is volatile, you can see patterns emerging with more data in your trading journal. With this information, you can make sure that you will generate more income in the long run, while also avoiding mistakes that can lead to a loss of money.

Repeating the factors that contributed to your success is not a guaranteed way of earning money, but it does lower your risk of loss by a lot, especially if you have a lot of data on hand. This will help you generate more income in trading.

7. Experiment on Your Future Trades

Your trading journal helps you recreate factors that can lead you to income generation. However as said before it also allows you to do experiments. What if you changed XYZ  would that give more profit? or not? By recording all your trades you can easily look back and get answers to questions like this. A good trading journal helps you to get these answers quickly

Why Choose an Automated Trading Journal?

While you can manually record all the data you need to help you with your trading strategy, there also automated trading journals that can do most of all the work for you. Some benefits are:

Lessen Human Error

Human error might be inevitable if you are manually recording all your trading transactions. But with an automated trading journal, you do not have to worry and waste a lot of time double-checking the information you put in. You do not even have to keep on reminding yourself about recording the stocks, as it will be recorded as soon as you make a transaction.

Accessible from Anywhere

An opportunity for a great investment may come anytime, and this is why you should always be ready. While you always have access to your trading platform through your mobile device or your computer, the same thing cannot be said about your trading journal. Maybe you are on vacation out of the country, and you decided to invest in stocks, but you left your journal at home. While you can definitely take note of adding the transaction, later on, it can be a little hassle for you.

With an automated trading journal, you can transact anytime, anywhere, and it will still be recorded in real-time. You can forget about forgetting to record your transactions with an automated trading journal.

Final Thoughts

A trading journal is one of the most essential tools you can use to help you become successful in trading. From beginners to experts, a trading journal has helped a lot of traders reach their success. With this simple method, you can easily generate an income and, possibly, make trading your primary business.

Erwin Beckers

I am the owner of EB-Worx. Together with my wife and dog I live in the Netherlands where I love to day trade the ES-mini and develop software which helps me to become a better trader.

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