Day Trading Journal: What Is It and Why You MUST Have It

To become a successful trader, one needs to do a number of things. Some are more important than others, but all are necessary.

The trader needs to be fully committed to trading and understanding the stress involved in it. Without this interest, chances are high that the trader will give up when he loses his funds.

Secondly, the trader needs to identify his best strategy to enter, hold, and exit trades. Third, a good risk management strategy is important because it will facilitate asset allocation in the portfolio.

Finally, the trader needs to understand the need for learning from his mistakes. This is achieved through a day trading journal which many of the best traders have confessed to practice.

What is a day trading journal

A trading journal is a sheet of paper or excel document that highlights the trades entered, the reason for entering, holding, and exiting them.

By developing a journal, one is at a good position to understand his trading style in a better manner. Whenever he buys or sells a stock, Warren Buffet has developed a routine of writing down the reasons for doing this down.

The same practice is used by super star traders such as Ray Dalio, Bill Ackman, and George Soros.

For currency traders, journaling will help you understand the best currencies to trade, when to trade, how to trade the release of economic data, and how to allocate resources in your portfolio.

Ways to keep track of your journal

Traders have different strategies to write their journal. In the past, most people used to focus on a book. These days, many people are using soft-copy versions of journals.

These soft-copy versions are usually better because they can be synced from one device to another. Some of the most popular tools to use are: Google Sheets (or Excel), Google Docs, Evernote, and Microsoft OneNote.

Why you need a day trading journal

As we have told you, almost all successful traders keep track of their trades. Everyone with their own method, which also varies according to trading style.

Anyway, there are other several good reasons why you need a trading journal as a trader.

Related » Tips on Keeping a Trading Journal

Be a disciplined trader

First, the journal will help you to be a discipline trader. And being a disciplined trader is one of the fundamentals of being a consistent trader as well.

In our experience, we have seen that most people who don’t make it in the market are those who lack discipline. Therefore, a journal will help you to boost your discipline.

Prevents recurring mistakes

Second, it will help you avoid your past mistakes. As you will see below, a journal has a section where you write the reason why you opened a trade and why it made a loss.

You may, for example, find that you are affected by a bias in the study of certain types of news and that this may skew your 'reason for buying.' Thanks to the Journal, you can spot it and find a solution to avoid it.

Therefore, if you regularly review this journal, it will reduce your chances of losing money.

Mind and risk management

Third, the journal will help you avoid psychological traps and bias. Some of the most popular traps are revenge trading, extending the stop-loss, and by over-trading.

Finally, a trading journal is an important tool in both risk and money management. Risk management is the process of reducing the risks that you are exposing yourself to while maximizing your returns. Money management, on the other hand, is the process of managing your funds well.

The trading journal We will recommend in this article will include 3 key parts:

  • A currency pair (or other assets) checklist
  • Trades that you are waiting for
  • Existing or completed trades.

Key parts of a Journal

Checklist on the asset

This is a very important part of your day trading journal because it will give you an in-depth feel of the market before you start trading.

Before you start trading, we recommend that you fill this part with the aim of identifying a ranging or trending market. In your checklist, you should have a number of spreadsheet columns which have the following sections: currency pairs/stock, current prices, high prices, low prices, and the triggers for the events.

After the column on the daily highs and lows, the next column should have the 10, 20, and 30 day highs and lows. This will give you a clear picture of the market and how it is performing.

The triggers you should have in the checklist include the key technical indicators that you use.

One, the Average Directional Index (ADX) is the most commonly used indicator to determine the strength of a trend. An ADI reading of 25 indicates that a trend has developed and the higher the number, the stronger the trend.

After the ADI, the Bollinger bands indicator shows a trend has developed when the pair crosses either the upper or lower Bollinger band. The Bollinger and the ADI are the best indicators for identifying the trend.

The next column should have the Simple Moving Averages (SMAs) which are essential for identifying a longer term trend.

The final part of the journal indicates the range group. Here, the ADX below 25 should be looked at which indicates that the trend is weak. Then, the oscillators, Relative Strength Index (RSI), and stochastic should be indicated.

A weak ADX with important technical resistance above the Moving Averages, RSI, Stochastic, and the Fibonacci retracement indicates a range.

Related » 12+1 Easy-to-Win Secrets of Successful Technical Traders

Trades you are waiting for

After doing the market analysis, you should be at a good place to understand where the market is going to. In this journal entry, you should now indicate what you are waiting for in a systematic and scientific manner.

A good example of this is:

  • 21st August Buy EURUSD on a break of 1.1234 (previous day high)
  • Stop at 1.1200 (30-day SMA)
  • Target 1 1.1280 (38% Fibonacci retracement of June – July bull wave)
  • Target 2 – 1. 1292 (upper Bollinger)
  • Target 3 – 12 day trailing low.

By having such a trading journal, you will know what to do when the level is reached. For instance, you will be at a good position to place a buy order at 1.1234 and a take profit and a stop loss.

One way of doing this is to use pending orders. A pending order simply tells the broker to execute a trade when the asset reaches a certain price. For example, assume that a stock is trading at a range of between $10 and $11 and you believe it will have a bullish breakout.

Instead of waiting for this trade to happen, you could place a buy-stop at $11.5 and a take-profit at $13. In this case, if the price rises to that level, the buy-stop will become the new market order.

On the other hand, if the stock is trading at $10 and you expect it to drop to $9 and then bounce back, you can open a buy limit at $9. If this happens, the stock will retreat and then the buy limit will become the new market order.

Further, you should always protect your trades using a stop-loss and a take-profit. A stop-loss will stop it when it reaches a certain loss level is reached. A take-profit, on the other hand, will stop it when it moves to your target.

Reviewing your day trading journal

At the end of every trading day, you should have a quick look at the journal with the aim of establishing a pattern.

You should look at the trades you won and those which went against your analysis. You will also look at instances where you took profits prematurely, extended losses, and when you got emotional and made a mistake.

By looking at this scheme, you will have a good understanding of what has worked for you in the past and what has not worked for you. In fact, you are able to input this data to a computer and analyse it to improve your trading. ­­

An example.

Entry: Bought 4 lots of EUR/USD @ 1.1243 Stop loss. 1.1200 (a strong technical support) Target. 1.1300 (upper Bollinger), 1.1310 (former head and shoulders support turned resistance, 100-day SMA)

Result: Trade closed at -85 pips EURUSD failed to continue the estimated uptrend. It was also becoming overbought because the ADX was weakening, falling from higher levels, and there was no divergence in stochastics.

Tip: Watch out for divergences next time.

FAQ

How do you create your trading journal?

As mentioned, you should create it to be a simple document where you journalize all your trades. Remember, it does not need to be a detailed document.
You can have one with collumns like asset, opening and closing price, profit, reason for opening and closing the trade, and the date.

Is a trading journal a reliable tool?

Yes. As mentioned, trading journal is a very reliable tool that any trader can and should use. It can help you to prevent popular and simple mistakes. Also, the journal will help you make better decisions as a trader.

What do you need to include?

We recommend to include 3 key parts: A checklist with the assets to trade; the trades that you are waiting for; the existing or completed trades.

Summary

Whatever your trading style, some tools are essential if you want to succeed. The day trading journal is among them, because it allows you to keep track of all your actions in the markets, profits/losses, and thus constantly improve.

External resources to understand Day Trading Journal

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