8 Rules: How To Create Your Trading Journal

The trading process is split into 3 parts:

1) Preparation;

2) Execution;

3) Analysis.

In this post, I'll talk about the execution stage - the part where you actively fill your trading journals(s).

Later in the future, I'll approach the subjects of "how to prepare yourself for the trading week ahead" and "how to effectively analyse your trading journal".

For now, let's get deep into the execution stage:

What are the main things you should know when building your trading journal!

A trading journal is one of the most important tools a trader can have. However, if he/she doesn't know how to use it correctly it ain't worth of much.

There are some things you need to know to build your trading journal in the most effective way.

Let's dive into it.

#1 Have a backtesting journal

We all hear about backtesting and its importance all the time. But how can we practically use it?

The execution stage includes 2 important types of journals:

The same way you have a trading journal to note your live trades, it's very important for you to keep a backtesting journal.

This journal is similar to your normal trading journal but it skips the risk management part and the psychology (because you didn't take the trade). The only thing you're testing is the win/hit rate of your strategy.

While your trading journal is designed to evaluate your whole performance as a trader (like the psychology, mistakes, habits, etc), the backtest journal is exclusively to take conclusions about the efficiency of your strategy.

This is how it works: You go back in time in your charts and spot all the set ups you would've taken within the context of your strategy; Fill in your backtesting journal.

When you do this, you're not only preparing yourself to use your strategy live, but you are increasing your confidence towards it. You develop the ability of pattern recognition and, when you see a certain price action developing in real time, you are prepared to act upon it without letting emotions affect your judgement.

This is a very underrated thing in trading: the backtesting part, but it's one of the most important aspects of trading, at least in the beginning of your trading journey.

Your backtesting journal should include:

• Pair;

• Date (open-close);

• Day of the week;

• Session (Asian/London/NY);

• Direction (long/short);

• Each and every confluence of the set up;

• HTF (higher timeframe) analysis;

• Entry price;

• Stoploss;

• Result (win/loss);

• Pip loss/gain;

• Screenshots;

• Observations about the market.

This is all factual information, as you can see. The backtesting part doesn't test your performance in the market. Rather, it tests the efficiency of your strategy in the market. Then, it's up to you to perform your strategy the best way possible.

#2 Your Trading Goals

Have your goals written down in the same document you have your trading journal. I always do this myself and it helps me remaining focused and motivated.

• It's important that you set attainable and realistic goals that go along with your past performance. It's easy to fall in frustration.

• Always set, at least, 2 psychology goals - things you want to improve within a certain period of time. It can be a habit you wanna break or a thing of your personality you wanna improve.

This is done by analysing your trading journal and identifying your mistakes and thoughts/emotions patterns. When you know your flaws and you are aware of your weaknesses, you can work on them directly. No distractions.

• Never set money goals.

Instead, set percentage goals.

We already know that money shouldn't be the 1st focus of the trader, right? Otherwise he/she gonna put emotions in the game.

So why setting money goals?

That only puts pressure in the game which gives room to emotions. Focus on your performance and in the process to set your goals, not on the result. It's the first one that leads you to the desired result.

#3 Metrics of the Trading Journal

These, are the metrics I include in my own trading journal:

- Date (open - close);

- Week day;

- Pair;

- Session;

- Direction (long/short);

- Set up (confluences);

- Entry price;

- Stop loss (price/pips);

- Risk (%/money);

- Lot size;

- Scale in level (if applicable);

- Exit levels;

- Outcome (win/loss/BE);

- Risk to Reward ratio;

- %, money and pips of win/loss;

- Balance at the end of the trade.

#4 Did you miss a trade? Write it down!

As you write down the trades you took (and some of them, you shouldn't have even take them because they were outside of your strategy or you chased the move - FOMO), note as well the trades that you missed.

Those trades that your strategy told you to enter but, for some reason, you didn't. Write down as well the reason why you didn't take them.

Make a separated section for these trades. They, too, are important to review and analyse so you can avoid to lose opportunities your strategy gives you.

#5 Include a detailed Psychology Section

This is the most important section you can include in your journal!

• Thoughts and Emotions before, during and after the trade;

• Mistakes;

• Good things;

Traders often miss this part on their trading journals. Facts are: if you wanna improve the most important aspect of your trading: your psychology, you have to journal it in order to spot mistakes and possible things to improve. Otherwise, you'll remain ignorant about what's the problem that are causing your poor results.

It is essential that you write down your thoughts and emotions during the process of each trade:

• Before - What did you feel in the moment you were taking the trade? How do you feel about your set up?

• During - Did you lost confidence in your ser up? Was it because of price action? Did price consolidated to much?

• After - How do you feel about that trade and the result? Satisfied? Did you win but you feel you left money on the table? Or could've you done something different? Contrast your expectations (initial thoughts) with the reality (result).

Mistakes are basically the things you disrespected about your system. Whether in your risk management, set up confluences or rules. Note as well things you see as a mistake in your psychology. Maybe you stared at the charts constantly after you took a trade.

As you did some mistakes, I'm sure there's always things you did good as well. Note those things you're proud of and wanna repeat more in future trades.

At the end, by writing down on these topics, you have to be able to answer to the most important question:

You can judge your whole trading performance only by answering to this question.

• If the answer is yes, you're going in the right direction. Analyse the things you did well and keep doing more of it.

• If the answer is no, review all your mistakes, thought patterns and emotions and set things to work on and new goals according to it.

#6 Attach Printscreens of the Charts

Attach screenshots of the charts of your trades in your trading journal!

It is the most useful thing you can have to review your trades. You save a lot of time reviewing your trades just by looking to your printscreens.

You should attach at least 3 screenshot types:

• Execution timeframe;

This print of the execution timeframe should have your entry, stoploss and take profits marked on the chart. You can write down some comments about your analysis as well.

• Higher timeframes you used for you analysis;

The HTF's should serve to give you a big picture of the context of your trade. Attach all the timeframes you used for your analysis.

• Other.

Lastly, attach other charts to complement the study of the trade. It can be a repeated timeframe but with different drawings, tools or indicators in the chart.

You have to have at your disposal all the necessary information to study that trade.

#7 Observations about you, your trading or/and the market.

Write down everything you noticed about you, your trading and/or the markets.

These, aren't thoughts or emotions but simply things you learned/realized with that trade.

Did you noticed you get to emotional when you scale in?

Did you notice a specific pattern forms more often in certain times of the day?

Did you notice you make more mistakes when you are in a stressed mood?

This answers help you to make useful correlations and conclusions about your performance.

#8 Have your journal accessible anywhere, anytime.

Where do you trade? Laptop? Phone?

It is essential that you have your trading journal available in the moment you take the trade.

If you open positions in your phone but you have your trading journal on your laptop, it's difficult to fill it in the moment. This not only hampers the habit of journaling but it neglects the assertiveness of the information you write in there and your analysis of it, as a consequence.

Journaling is not a pleasant thing to do in the beginning and so, it is a habit you really have to implement. The easier you turn that action, the faster you gonna implement this habit.

Have your journal accessible at anytime. You never know when the set up gonna take place.

In case you don't have your journal with you, do this:

• Write down in your phone, like in a note or something, the thoughts and emotion section before and during the trade, at least. If you spot any mistakes write it as well. The important thing here is to not miss the moment you identify your emotions. As soon as you identify them, write them down!

All the other information as stoploss level, entry level, etc.. is factual and you can always revisit your account to write it down later. The emotions, however, are not that easy to revisit and remember once you passed the X moment.

Even if you take your trades through the laptop, place your trading journal in a fixed tab or in a place you know it's visible to you everyday when you open the charts.

Turning the access to your journal as easy as possible is an effective way to feed the habit of journaling.

Conclusion

Journaling is very important but it's worth of little if you don't know what and how to do it efficiently.

Your trading journal is your guide that directs your behavior: it dictates what you need to improve; habits you need to correct and traits you might have to change has a trader. So put effort in it and fill it actively.

Key points of this post:

• Have 2 journals: a trading journal and a backtesting journal;

• Have your goals in your journal;

• Include a psychology section;

• Screenshots are worth more than a thousand words;

• Take notes about things you realized or learned;

• Have your journal in an easy, accessible area.

Next blog post: "How to analyse your trading journal in the most productive way"

Until there, I wish you a good trading week!

Be aware & trade wisely.

The Perceptive Trader