Therefore, knowing how to create and use a trading journal is crucial to any trader's success. Without it, a trader could easily lose track of his winning and losing positions. Or even worse, they could blow up their account.
What is a trading journal?
There are several important reasons why keeping a trading journal is important, including:
- It keeps you accountable.
- It makes you more disciplined and consistent.
- It helps you spot profitable trading strategies.
- It documents your strengths and weaknesses.
- It makes you more careful when analyzing potential trades.
Successful traders plan all of their trades meticulously and document the successes and failures of their trading performance. By creating a trading journal and using it correctly, you can become a successful trader regardless of how the market moves.
How to create a trading journal
You can find a free trading journal template in the next section, but it’s also important to learn how to create one. You can customize your trading journal in a variety of formats to fit your trading style and needs. As long as you have somewhere to plan and document your trading activities, you'll be set.
First, you need to create a trading journal spreadsheet (e.g., Google Sheets, Microsoft Excel) and a written document (e.g., Google Docs, Microsoft Word). You'll be using these to record your exact trades and your thoughts, respectively. If you prefer, you can include the written document as a second tab in the spreadsheet (see template below).
Second, you'll need to know what you'll be recording daily so your trading journal will have the highest possible impact on your success. You can find several trading journal examples online. But regardless of the template, your spreadsheet should have columns related to each trade. These columns may include:
- Entry date
- Exit date
- Direction (long/short)
- Entry price
- Position size
- Notional value
- Stop loss
- Take profit
- Exit price
- Trading fees
- Profit/Loss (P&L)
- Profit/Loss percentage (P&L %)
Some traders may also add the time frame, screenshots of the setup, and anything else they may deem important. The bottom line is for the information to work in their favor.
In your written document (or in another tab), you should have a section for each day where you can write down all your thoughts and ideas so you can get them organized.
The written document is where a trader lets loose their creativity while their spreadsheet helps to measure the profitability of their creativity. Both are very useful when creating and using a trading journal.
And that's it! Learning how to create a trading journal is the easy part, though. Knowing how to use a trading journal is something you'll need to get good at over time. However, as long as you have a strong understanding of the fundamentals, you'll be using your trading journal like a pro in no time.
Trading journal template
Note that, in this example, we’ve added a second tab that works like the written document we discussed above. There you can add all sorts of thoughts and comments to track your decision-making process and the results of the previous trades.
How to use a trading journal
It's one thing to create a trading journal, but it's an entirely other thing to know how to implement what you learn from it into your trading system. Using a trade journal effectively can turn an unprofitable trader into a profitable trader.
Before you enter any trade, you need to have a good reason for doing so. This is where your written document comes in handy.
Your written document is also where you'll be making the argument over whether a specific trade idea you have is good or not. Your trade ideas should be turned upside down and inside out, so you can spot the strengths and weaknesses of each one.
Once you've got your thoughts and emotions written down, it's time to turn to your spreadsheet.
Your spreadsheet is less of a creative space than your written document and more of a logical space. This is where you'll be recording all of your trades, so it's important that you keep it neatly organized and up-to-date.
An important factor in having a successful trading journal is measuring your successes and failures accurately. With your spreadsheet, you should ensure you keep accurate records so you can gauge whether the ideas you've developed in your written document are profitable or not.
A good habit to get into is to record your trades the moment after you execute them. That's when they'll be fresh in your mind, and you'll save yourself time in the future.
Another good habit to get into is to review your trading journal spreadsheet every single day. That way, you can get a bird's-eye-view of your portfolio of trades, which can give you some insights into your level of exposure as well as if there's room to enter any more trades.
By learning how to create and use a trading journal to your advantage, you'll be able to identify patterns and market trends more effectively. Writing down detailed notes to record your ideas, emotions, and trades is an easy investment that can pay very high returns.