The Purpose and Function of a Trading Journal

The Purpose and Function of a Trading Journal

Retaining detailed records of your transactions is a useful tool for assessing your position in the world of international finance “Trading Journal“. Keeping detailed records is essential in trading, just as it is for a scientist. Surprisingly, however, a large proportion of market participants do not currently keep trading journals. This is primarily due to the fact that their importance is not widely known or understood.

Traders can gain a lot of insight and stay on top of their game by keeping a trading journal and monitoring their progress over time. Trading diaries may also serve as evidence in court if a dispute arises. This book will help you, even if you’re unfamiliar with trading journals, to understand what they are and how they can benefit your trading.

Why Keep a Trading Journal

A trading journal is where all of your trading activities are documented. Trading diaries are useful for keeping track of your trades and their outcomes in a streamlined format, but it’s important to keep in mind that they are not the same thing as a brokerage account statement.

A trading journal is a record of a trader’s successes and failures, as well as the trading strategy employed by the trader. You can learn a lot as a trader about the potential of a future trade without having to keep track of the market as a whole if you keep a trading journal.

Instead of spending time looking for other trading journal solutions, you can just use a couple of common office programs like Microsoft Excel and Word to create a trading journal. There are online trading journal solutions, but most traders are already familiar with spreadsheet and word processing programs. Utilizing well-organized spreadsheets and note taking applications will help you be disciplined and increase your consistency in trading.

If your trading strategy is a little shaky, you should still document every trade you make. With that in mind, you can learn to recognize bad situations and the factors that contribute to their deterioration, giving you a clearer picture of how to proceed. Some even go so far as to say that keeping a trading journal determines whether or not you will succeed as a trader.

How Should One Fill Out a Trading Diary?

Your daily gains and losses, as well as any relevant market data, should be recorded in your trading journal at the very least. It is recommended, however, that a trading journal contain significantly more information. How you arrived at your trading decisions, how they played out, and how they may serve you in the future.

When you break down your trading performance down to the smallest of details, such as your entry and exit, you gain a much clearer picture of your overall performance and can adjust your trading tactics accordingly. To put it another way, the more data you save, the clearer it will be to see if your trading strategies are paying off. In the following we will go into greater depth on this topic.

A Trading Journal’s Benefits

There are many advantages to keeping a trading journal that can aid a trader in sticking to a solid trading plan. This plan should outline the trader’s goals, trading methods, risk tolerance, and trading psyche. If you keep a trading journal, you can assess your progress and identify areas for improvement in order to strengthen your next trading strategy and make more informed decisions.

By keeping track of transactions in a trading journal and analyzing the data in it, a trader can, for instance, determine whether or not to engage in the use of crypto derivatives or to begin the process of reinvesting cryptocurrency gains. Decisions made with the help of a trading journal are free of erroneous judgment and biased beliefs, protecting you from unimportant factors that could otherwise influence your trading objectives and preventing you from squandering time and energy on pointless speculation.

Any trader, new or seasoned, can benefit from keeping a trading journal because it can provide valuable insight into the next trading strategy that must be implemented to maintain market relevance. You can’t expect to turn a profit and develop winning trading strategies without some sort of foundation. The framework can reveal your degree of trading success and steer you clear of potential pitfalls in the market.

If a novice trader is only thinking about the potential gains, they may be making a big mistake. Therefore, if you maintain a good transaction history, you can begin making use of less secure entry points or acquire additional cryptocurrency. Maintaining your goals and minimizing the likelihood of making a rash, risky trade is made much easier with a trading plan.

As another illustration, foreign exchange (FX) trading is a profession in which one’s frame of mind plays a significant role. When dealing with the foreign exchange market, the majority of traders experience negative mental emotions that lead to ineffective and careless decision making, ultimately lowering their performance. Keeping a trading journal can help users gain insight into their trading habits, as well as remove the influence of emotions.

A trading journal’s other benefit is that it encourages accountability. Keeping a clean and well-documented record of your trading activities can help you avoid legal trouble and learn whether or not you have a winning trading strategy. As an added bonus, a proven track record can give ambitious traders the drive and confidence they need to reach new heights in their profession.

Now that we’ve covered the fundamentals of trading journals, we can get started making one of our own.

Preparing a Trading Log

Just about any program that lets you make and manage spreadsheet files, such as Microsoft Excel or Google Sheets, can be used to keep track of your trading activities and their outcomes, as was mentioned up top. In addition to this, it is recommended that you use some sort of note taking application, such as Microsoft Word or another, to document your general ideas and feelings regarding trading.

If you don’t feel like making your own trading journal, there are plenty of helpful examples available online. No matter what source you end up using, you’ll want to double-check that your chosen templates have all the necessary columns and headings for recording pertinent trading data.

In addition, you can attach a screenshot of the trading chart you watched next to the trade where it was used, making it easy to analyze without rehashing the past.

In this section, we will learn about the essential parts of a trading journal, including the columns that should be present in a spreadsheet and the elements that should be included in a note file.

Monetary Substances

You should list the asset you traded, along with its full name, type, and trading platform, in this column. This column should contain information about a specific cryptocurrency exchanged on a specific exchange, such as Ethereum (ETH) on Binance.

Timestamp and Date

Dates and times of trades, along with any notes about why those times were chosen. On July 4th, for instance, during a trading lull when Bitcoin displayed a drop in price at 2:00 p.m., you made a $100 purchase of Bitcoin. Since most cryptocurrency-related news and stories are published before noon, the market for these assets tends to dip during the afternoon.

Open Trades

Keeping track of your short and long market positions is crucial for adjusting your trading approach. By taking a long position, investors hope to profit from rising cryptocurrency prices by learning more about the market and then selling their holdings at a later date.

When taking a short position, investors borrow cryptocurrency and then sell it at the current market rate. If the value of cryptocurrencies drops, the investor can buy them back at a lower price, returning the borrowed cryptocurrency and pocketing the difference as profit.

Rates, as well as a Loss Limitation Policy

Tracking the purchase and sale prices is also helpful. Simply put, the entry price is the valuation at which the trading activity is initiated, while the exit price is the valuation at which the trading activity is completed. Trading stop-losses allow investors to automatically place sell orders once their predetermined loss threshold is reached.

Trade Volume

It is important to keep track of the “tradable amount” within the trading journal so that you have a clear view of the number of risks involved in the trading activity. If your tradable value is $200 and you make a trade with ADA while you only have $170, you are taking a risk equal to 70% of the tradable value.

Revenue and Expenditures

Keep accurate records of all your trades, whether they were profitable or not; this will give you a clearer picture of what works and what doesn’t, and will aid you in making more informed decisions in the future.

Insignificant Digressions

Statistical data is useful, but keeping track of your own decisions and trading strategies is just as important for a thorough analysis. Both quantity and quality are equally crucial. To do this, you can use Microsoft Word, Overleaf, or LaTeX, or any other documentation app you prefer.

Statistics on How Things Have Been Doing

Keeping a log of your actions is a great way to monitor your progress. It’s possible to find a variety of charting options on the web. Once you have a chart of your performance metrics, you should either save it to a specific folder on your computer or include a copy of the chart in the document next to the trade in question. This will make the chart readily available in the event that you need to reevaluate your performance.

The chart needs a vertical line or text to indicate the beginning and end times. Keep track of the specifics of any major economic events that caused you to change course. The market, your trades, your gains and losses, your mistakes, and your results are all important to keep track of on a daily basis. The goal is to strategically place as many highlights as possible on the chart without making it unreadable.

Not only will you learn about the future, but you’ll also gain an up-to-the-minute perspective on the market and its relative performance.

Effective Use of a Trading Journal

Now that we know what a trading journal is and how to make one, we can move on to actually using one. A perfect trading journal is improbable, as is the case with anything else. Before entering their trades into the journal, each trader should investigate the metrics he or she needs or is advised not to use. This concept needs to be at the center of a trading log’s layout.

Keep track of your thoughts on potential trading strategies and positions by using a note taking app. Noting the highlighters you used to eliminate negative effects on your performance is just as crucial as mentioning the markets you watched closely. In addition, you should defend the viability of the trading idea you implemented in the paper.

You can learn the benefits and drawbacks of each trade you propose by taking a closer look at your trading ideas.

Afterward, return to your spreadsheet file to continue keeping track of your regular trading activities. It is crucial to maintain a well-organized and up-to-date version of this document in order to get more reliable results. To speed up the calculation of specific metrics, you can use the mathematical equations feature in spreadsheet applications like Microsoft Excel. Now, after the trading activity has concluded, you should follow the same steps again, this time to record the outcomes.

If you want to know how much risk you’re taking and how likely it is that you’ll be able to improve your portfolio as a whole, checking your spreadsheet file on a daily basis is essential. The burden of knowing where you stand in the market and how to advance your position rests squarely on your shoulders. Keeping a trading journal can help you focus on actionable data rather than letting negative emotions derail your trading career.

Now that we’ve covered the setup, we’ll move on to reviewing the trading journal as a whole, which is covered in greater depth below.

Why It’s So Crucial to Look Back on Your Trading Journal

Now that you have a thorough log of your trading activities, you should review it on a weekly and monthly basis to evaluate how well you have done. This will aid in identifying trends, drawing attention to places where you excel, and revealing any weaknesses that require improvement.

Taking pictures of your trading activities instead of keeping a journal can be useful as a substitute, but it can’t replace the level of detail you’ll find in a dedicated trading journal. Maintaining a regular review schedule will help you evaluate your trading activities more accurately.

Final Thoughts

If you want to stay ahead of the competition in the world of financial trading, keeping a trading journal is a great strategy because it gives you a clear picture of your market performance, your strengths and weaknesses, the money you made, and the money you lost in the event of a failed trading activity. The importance of meticulous record-keeping is not limited to the realm of finance.

In addition to improving your memory, taking responsibility for your every move increases your productivity by discouraging frivolous choices that waste your time and money. Now that you know how simple it is to keep a trading journal, you can get started right away and improve your trading results.

Orizu Augustine
Orizu Augustine is an experienced crypto writer working for Alltechcraft. Having passion for writing, he covers news articles from blockchain to cryptocurrency and iPhone and Samsung related articles.