Why Should You Keep a Trading Journal?

Did you know that Glassdoor reported that the average day trader income was $74,000 in 2021? Of course, many people made much more than this and some lost money as well.

How do you ensure that you are more successful than the average day trader? Well, you can do this by keeping a trading journal. Does that sound sort of cheesy and useless to you?

Keep reading to find out the advantages of keeping a trading journal and you will be starting one in no time.

Helps You Tally and Keep Track of Your Trading Performance

A trading journal is a detailed record of all your trades, usually in the form of a spreadsheet. This way you can analyze the data easily and almost at a glance.

Make sure you put in all the details of your trade entry and trade exit. Once you have all this information, it becomes way easier to keep a tally of how much money you are making (or how much you are losing), and how well you are doing in the market.

The problem with most humans is that we are way too savvy at fooling ourselves into believing that we are doing better than we are. This is especially true for newbie day traders.

A beginner day trader wants to believe that they are doing well, so they can stay in the game longer. If they realize early on that they are losing money, they might give up and that’s not what they want.

But that’s false information and every time you let false data guide you, you are playing a losing battle.

With a trading journal, you will know exactly what your trading performance is. It doesn’t matter if it’s good or bad at first, because almost everyone is terrible at trading in the beginning. But once you have a baseline, you can work upwards from it.

You can use the information recorded in your trading journal to decipher how to improve your trading performance.

Helps You Refine and Improve Your Trading Strategy

Once you know what your baseline is, use your trading journal to improve your trading strategy. You will be able to glean a huge amount of information from your trading journal, like:

  • Which assets are making you the most profit (or least)?
  • How long did you hold your best trades?
  • Which days should you be trading on (the most profitable)?
  • How frequently are you trading and if you should change that?
  • Are you taking too much initial risk on each trade?
  • How much profit/loss on average does each trade garner?
  • What percentage of your trades are profitable?

These are just a few measures you can calculate and analyze from your trading journal. As you become more comfortable with keeping a journal, you will be able to come up with specific measures that work for your trading style. That’s when you will notice your trading profits jump rapidly.

Helps You Confirm Your Trading Methodology

Remember that you are not filling in a trading journal to appease some trading gods or worse, to say you have one. A partially filled trading journal is completely useless and a waste of your time. It will not give you any good information to analyze and might even lead you astray.

If you are going to have a trading journal, then do it right. Fill it out completely and don’t skip adding in trades that bombed because you don’t want a record of your dismal failures. The only way you will be able to learn from your mistakes is if you add them to your trading journal and analyze them over time.

The great thing about having such a record of your trades is that you will learn what your trading methodology is. Even if you have some trading gurus that you follow religiously, you will still have developed a style of your own. That’s inevitable the more you trade.

Some Questions to Ask

That’s why you should take time every few days to answer some questions, like:

  • What kind of strategy do you use in trending markets and does it work?
  • How does your strategy work in other kinds of markets, like sideways?
  • How many of your trades hit stop losses and how many hit target?
  • What was your maximum drawdown during a particular period?

If these questions don’t make sense now, don’t worry. As you do more trades, you will understand what they mean and how you can use them to confirm how you trade.

Remember that if your trading methodology isn’t garnering profits, then you should dump that strategy and find another way of doing things. Do not get too attached to one methodology or another. It might take you some time to find the perfect methodology for your personality and character, but once you do, it will feel like every trade is magic.

Helps You Stick To Your Trading Plan

There’s a reason it’s called a trade journal and not a trade report. You are going to write down all your trades, but you are also going to write down WHY you chose to do each trade.

  • What was your thought process behind each trade?
  • Why did you decide to do this trade as opposed to something else?
  • What made you feel like this was the best course of action?
  • Was it your intuition piping up or did you do some technical analysis?

All this data will help you understand why you make the trades you do and help you figure out why you make the mistakes you do.

You should also write down these additional things:

  • Why did you place your stop loss at that particular point?
  • What triggers you to set up a trade?
  • How do you set up your profit targets and why?
  • What is a strategy for managing trades as they progress?

As you get more into your trading journal and realize how useful it is, you will add in many more details. All these details about your thought processes and trading strategy will make you a better trader over time and also help you stick to your trading plan.

This is because you will be using the information from each trade to better yourself. You won’t be trading blindly any longer.

Helps You Stay Positive Through Tough Times

Helping you control your emotions is an important function of your trading journal. Every trader has those rough spots where they feel like they aren’t making any money at all, and everyone else seems to be rolling in the dough.

Not every trade you make will be successful and perhaps you might even have swatches of time where you aren’t making any money at all. This could all lead you to become disheartened and even give up the trading life.

But if you have a trading journal, you can go back to your past trades and past periods, and see that you do know what you are doing and that you aren’t a complete failure. It will help you see the reality of things rather than getting misguided by overflowing negative emotions.

It will also help you during the positive times as your trading journal will show you clearly that you are a good trader that makes profits consistently and that will boost your confidence. Don’t let your ego blow out of proportion though, and stay humble so that you don’t overplay your cards and invest more than you can handle.

As soon as you notice yourself getting fearful or greedy, stop and take inventory. Confidence is essential in the trading game, but overconfidence is a mind-killer.

When your profitable trades start feeling less ‘random’ and more due to your strategy, that’s when you will know that you are officially an expert trader. Only time and practice will get you there, but a trading journal can help you along on this journey.

Are You Convinced of the Efficacy of a Trading Journal?

As seen above, there are so many advantages to keeping a trading journal that it’s surprising more people don’t do this. It does add an extra step to every trade you put on, but it’s such a worthy step to undertake.

The longer you keep a trading journal, the more you will wonder how you ever did without it before. It’s one of the most important habits you can build as a newbie trader.

We would like to offer you some help with your trading. We sell current indicators using our NinjaTrader software and have over 100,000 trading platform users. Contact us if you would like to learn more about this.

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