The trading journal : an essential tool for investors

A trading journal is probably one of the most important tools for a trader. A properly maintained journal enables you to analyze your trades, improve your strategy, and progress as a trader.

Some investors are so focused on their entry points, exit points, and the location of their stop-loss and take profit that they forget that a trading journal is not just a record of trades, but a psychological support and research tool.

What is a trading journal  What information should a trading journal contain ? How can you get better results from your trading journal ? 

Here is a complete summary of all the information you need to know to take full advantage of the potential of a trading journal.

Trading journal basics

Before diving headlong into building a trading journal, it is essential to start by defining your investor profile. Indeed, the structure of a day trader's journal will not be the same as that of a long-term investor. And for good reason : their methods and aims differ greatly! So start by taking a moment to think about the strategy you want to adopt in order to select the information that will really matter to you.

Some information that cannot be ignored :

  • The date and time the transaction was entered
  • The date and time the transaction was released
  • Entry and exit prices of the transaction
  • The reason you made the trade
  • Stop-loss level
  • The level of the take profit

Of course, if you don't close all your positions at once, you can also describe all the levels where you will partially close the position. Similarly, if you have multiple entry levels for a position, you can write down the confirmations you need to see before you increase the size of your position, whether those confirmations come from price action or another source (economic calendar, for example). You get the idea: you will need to adapt your log to effectively describe your position entry and exit conditions (setups). In this way, you will eliminate impulsive trades that are the result of your emotions and trust your reason.

Indeed, when you're in the thick of the action and feel the urge to close your positions on the spur of the moment, your trading journal will guide you. The great trading masters are unanimous that discipline is the key to success.  

Keep a paper trading journal

Whether trading rice futures in the Tokugawa era in Japan or South Sea Company stock in England a few hundred years ago, all successful traders had a "physical" journal to track their transactions and analyze all their trades. Keeping a paper journal has certain advantages. No bugs, easy to access, no distractions... However, you can't back up a paper journal or sync it between your devices and therefore must always have it with you.

Moreover, it can be difficult to analyze your trading data efficiently. In-depth analysis will require you to input the data on your computer. For these reasons, a paper trading journal is slowly losing ground to digital versions.

Keeping a digital trading journal

In Excel or Google Sheets, a digital trading journal allows you to enter your data very simply into a spreadsheet and to apply automations and calculation formulas in order to make the data “talk". Of course, the preparation of the journal can be time consuming. Nevertheless, there are many templates available online. A simple Google search will allow you to find some free templates that you can adapt to your needs.  

Keeping a trading log on MT4

Software directly connected to your broker, such as MetaTrader, allows you to automatically retrieve your operations data. This way, you don't have to waste time copying the results of your operations, everything is immediately available and usable. The geekiest traders can even go as far as to code their own trading log on MetaTrader in order to adapt the standard trading log to their needs.

Now you know why and how to keep a trading journal. Although this task can be a bit time consuming until it is automated, it is still essential to your success.