There is no doubt that a trading diary is essential for every trader who wants to succeed in the financial markets.
As cliche as it might sound, your mistakes are an indispensable part of your path to successful trading. Learning from your trading mistakes enables you to enhance your judgement and improve your decision making.
Your trading diary is going to help you do just that. Read on to find out how.
What is a Trading Diary?
A trading diary can be kept in an excel spreadsheet or an ordinary notebook. In a trading diary, traders drop down their thoughts on the market before they start trading. They also write down their trading plans – the way they decide when to enter and exit a trade.
After their trades are completed, traders record the results in the trading diary, including what assets they were trading, and the number of trades made.
Trading diaries also record traders’ emotions when they make trading decisions – one of the most important functions of the trading tool.
Keeping a trading diary allows you to keep track of not only successful but also losing trades. This enables you to understand the reasons behind your bad decisions and adjust your trading strategy.
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Advantages of Keeping a Trading Diary
A consistently profitable trader will not disagree with the benefits you can get from keeping a trading diary. Let’s take a look at the advantages of having a trading diary.
- It will become much easier to find the right trading style. You can study your emotions when executing your losing trades, and assess whether your current trading style is suitable for you.
- You can quickly spot your mistakes and rectify them. There is nothing more frustrating than making the same mistakes and losing your money repeatedly.
- Your trading diary can help you understand in what situations you make mistakes and why.
- You will become more disciplined. Thanks to the trading diary, it will become easier for you to observe where you violate the rules of the trading system.
- It will help you optimize your trading strategy. Your trading diary will allow you to conclude why your strategy does not bring the results you expect, and how you should adjust your strategy.
- You are constantly learning. When you have concrete figures and a history of your trades in front of you, you can learn from your mistakes. If you don’t keep a trading diary, it may be difficult to remember them.
- You will be able to see your strengths and weaknesses better. You cannot utilize your strengths fully until you get rid of your weaknesses. And to identify your weaknesses, you need statistics. You need to find out where you lost money and why. Your trading diary will help you do just that.
- Your trading diary entries will also allow you to better understand your strengths so you can make the most of them.
- You will have the ability to make decisions based on specific indicators and figures.
How to Start a Trading Diary
Starting a trading diary may seem complicated and daunting, but we are here to guide you and help you record your trading journey at ease.
An effective trading diary should consist of the following three parts:
1. Your Trading Plan
It is impossible to reach your goal without knowing where you are going. Therefore, you need to develop a trading plan before entering the markets.
In your trading plan, you need to answer several important questions, for example, in what case you will close a position and when you will hold it.
You should also write down your thoughts on the market and its future movements. Once you start trading, you can compare your prediction with the actual development of the market. You can then find out how accurate your predictions are, and whether you need to adjust your strategy.
In addition, the trading plan should indicate in what cases you will open and close a position.
Last but not least, specify what emotions you were experiencing when you are trading. This will help you keep emotional trading under control.
2. Trading Results
The second part of your trading diary should record your trading results. This is very useful because it helps keep track of the effectiveness of your trading strategy, especially when it takes time for some strategies to show any results.
By analyzing your trading statistics, you will be able to understand when you are too aggressive or too cautious.
3. Your Emotions
Finally, put down your emotions and thoughts when you are trading. This final part of your trading diary aims at increasing your emotional stability and your ability to cope with stress.
Keeping a trading diary can help you quantify and measure your trading process. By thoroughly studying your emotional triggers and the effectiveness of your trading strategy, you can ensure you are on the right path towards a profitable trading career.
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