I am sure you are familiar with the notion that most forex traders fail due to emotional trading.

Emotions have the ability to cripple your profit potential and accelerate your losses.

The best way to handle your trades and keep your emotions in check is by learning from your mistakes and creating a profitable currency trading strategy.

A trading journal helps the trader define and implement a workable, practical, and profitable trading strategy.

It also helps traders track their performance over time. This helps them learn from their mistakes, maintain discipline during forex trading, and improve their trading performance.

Why You Need a Trading Journal

The reasons and advantages of having a complete record of your currency trading activities cannot be gainsaid.

The four most important reasons to keep a trading journal are:

1.      Historical Perspective

Your journal will over time be your one-stop point for reflection and learning. At just a glance, you can tell where you went wrong and what you did right.

You can tell whether you have been improving or your forex fortunes have been declining.

The trading journal acts as your trade performance database which helps you see how many times you traded, how each trade performed, which currency pairs performed best/worst, and which timeframes worked or didn’t work for you.

2.      Trade Planner

Your trade journal should not only record what and how you trade, but also tell why you made the trade decisions.

Such information helps you in your future decisions on when to enter a trade, how to manage the trade, and when to exit the trade.

Reflecting on your past performance helps you make better decisions on how much risk to take on trades and where to set your profit targets on each trade.

By using your past history, you can not only plan your future trades, but also keep you on your set plan.

3.      Trading System Verification

By monitoring your trades over a period of time, you can tell whether your system is profitable or loss-making.

Your past performances in the forex market will verify how well or poorly your system works under different market conditions.

It will show how well your system works when trending the currency market, when trading in a range-bound market, and when trading on each of the different time frames.

4.      Behavioral Modification

Studying your trading patterns will help you rein in your emotions, become more disciplined, and keep you focused on improving your currency trade online performance.

In due course, you will find that your losses are acceptable and their effect is planned for.

Your gains will not seem random either; they will be the effect of proper planning and timely execution.

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Designing a Trading Journal

The first step towards keeping a journal is the hardest. Designing the trading journal can seem overwhelming but you have to think about it systematically before you begin.

First off, you have to determine what it is exactly you need to be tracking with your journal. Some of the items you may want to consider tracking include:

1.      Date

You will need the date which the order got filled by your broker at the top of each journal entry.

2.      Currency Pair

You need to record which currency pair you traded each time

3.      Planned Stop

This is the point at which you will set your stop loss, limit order, take profit level, and even trailing stops.

4.      Possible Risk

This is the amount of loss you stand to lose on the particular trade

5.      Possible Reward

This is the amount of profit you stand to make if the trade is profitable

6.      Lot Size

This is the size of the position you take on the trade.

7.      Entry Price

This is the actual price at which you entered the trade

8.      Exit Price

This is the actual price at which you exited the trade

9.      Pips

This is the total number of pips you gained or lost in the trade

10. Profit or Loss

This is the total amount of gains or losses you made on exiting the trade.

11. Exit Date

This is the date when you closed the position

12. Setup

This explains your reasons for entering that particular trade and why you set the parameters as they were for that trade.

What the Journal May Look Like

The best and simplest method for making your forex trade journal is to use the variables discussed above as the headings for your columns and rows on an excel spreadsheet.

If you know how to use excel formulas, it makes the necessary calculations easier when determining your profits and losses.

Table 1: Example of a simple trade journal with one entry

Summary

One of the best advantages of keeping a forex trading journal is that the significance of the risk-reward ratios becomes glaringly clear over time.

This improves your money management skills thereby protecting your forex account investment.

Another obvious and strong argument for having a regularly updated trade journal is that it builds up your confidence levels which in turn erode the effects and likelihood of emotions derailing your trading plan or strategy. Confidence drives away fear and insulates the trader from getting greedy.

Photo credit: 4xsystem