I am glad to see you at the second level of my course! The topic of today’s lesson will be different from the first-level articles for several reasons. First, I consider today’s topic to be the most important one of the whole course. Yes, out of 22 lessons, I find this one, the 7th, most important to understand.
Of course, I really do not recommend skipping any of the compulsory topics, but if you do not start a trading journal, the entire course will be 30% less effective for you. In addition, at the end of the lesson you will have the first practical assignment ahead of you and, as you have already guessed, it will be related to keeping a journal. So, let’s go!
A trading journal is a place where the experience of all of your trades is recorded for further analysis. By the way, in some sources it is also called the blotter.
I consider this term to be absolutely inappropriate for our purposes. Many authors really recommend keeping a register as a table for all your transactions recording time, prices, transaction details, and adding screenshots there.
A trading platform, namely the History tab, is quite good for all this. Each transaction is registered there in the following convenient format:
- Order number (necessary if you have a question for your broker concerning a certain trade).
- Trade time
- Position type (long or short)
- Trade volume (in lots)
- Instrument name (for example, EUR/USD)
- Open Price
- Stop Loss and Take Profit Levels
- Time and closing price of the position
- Swap size, if any (I will talk about what this is in the lesson about the costs of trading and various commissions)
- Profit for a transaction (this can be positive or negative)
Additionally, in MetaTrader, you can download a report for any time period with a bunch of useful statistics, such as the % of profitable and unprofitable trades, the average profit of a paying trade, and many others. These will all be compiled automatically. We will work with this report in detail in the lesson on analyzing your trades.
Moreover, on the Internet there are some very useful services that visualize the reports of MetaTrader and calculate some additional parameters.
Why am I telling you all this? Because of the fact that the trader’s journal is a totally different thing than the blotter or the ledger of transactions. There is not much point in rewriting manually everything that is already recorded by your trading platform.
What actually is a trading journal?
For me, the trader’s journal is a tool that primarily helps to monitor the performance of my trading strategy. In other words, with the help of a journal, the trader can track how much he deviates from his plan, and how these deviations affect the result.
The main goal of keeping the journal is by trial-and-error to try reaching the level where your emotions will not prevent you from following your own strategy in a precise manner and to learn how to comply with the system you have designed for yourself.
So, the main goal of the journal is to control the accuracy of your strategy and to find the deviations from your own rules.
To achieve this goal, I consider it necessary to record the following factors:
- Remarks about your internal state at the moment of carrying out the trade
- Conformity of the trade with your trading rules
- The result of the trade
At least at the first stage, it is necessary to make as detailed as possible comments on each trade. The comment may concern both the emotions and the points of entry/exit of the trade.
Therefore, I suggest beginner traders to draw up and print the following simple table.
|Transaction number||Entrance point||Exit point||Emotional state||Compliance with the system||Transaction result||Commentary|
Now I will discuss each field in more detail:
- Transaction number—here we should write the transaction number that is displayed in the trade ledger in MT4. With the help of these numbers, you can always find the right transaction and display it on the chart in order to evaluate the correctness of all the actions performed.
- Entrance point—here we write the text about (important!) the motivation for entering the trade. Examples include the MACD indicator signal, intersection of moving average lines, and support handle violation. You do not need to write the quotation on the basis of which you opened the position, stop loss, or take profit levels.
- Exit point—ideally, there should be only two options: Stop Loss or Take Profit. This will mean that the transaction was closed either due to stop loss, or to take profit, which you set according to your strategy.
- Emotional state—the aim of this field is to try assessing your emotional state. By filling in this field, you can already prevent negative consequences because, if you feel bad realize this by filling out the table, it will make you more careful and aware when opening the next trading position. In this field, you can enter a number from 1 to 10, draw a sad/cheerful emoticon, or describe the inner sensations in one word.
- Compliance with the system—when analyzing this field, you should understand to what extent every action that was taken complies with the plan you designed originally. Here you can either put a number from 1 to 10, or write a text about what was done not according to the system.
- Results of the trade—profit or loss.
- Commentary—to write your impressions and/or recommendations for the future in any format. In the field you can put a note that the trade needs to be considered in detail in MetaTrader.
THE WORKPLACE OF A TRADER
I recommend that any Forex trader have only 6 items on his desk during trading. I have only these six things on my own desk, so that indicates that at least one person benefits from this setup. Here’s a list of items that should be on your desk:
- Computer with two monitors. On the first monitor there should be the trading terminal with the schedule, and on the second monitor there should be news, parallel work, social networks and other distracting things.
Here I will allow myself a few clarifications. First, traders who trade a large number of assets, such as shares on the NYSE, can constantly monitor hundreds of instruments and deal with the dozens of trading positions simultaneously. Scalpers need maximum concentration on the one monitor and that is why any distractions are generally excluded. A forex trader, as a rule, has a set consisting of 2 tools in the monitoring mode. Since the typical day trader on average makes about 10 trades a day, during most of the day you need be busy with something.
Idleness and boredom often induce traders to open unnecessary trades, and in order to avoid this, it is useful to occupy yourself with something other than trading. Someone might watch TV shows, flip through social networks, or play poker. Nevertheless, for these purposes it is better to have a second monitor, so that the terminal always remains in sight.
- Your trading strategy should be rigidly formalized (we will discuss this in more detail in one of the following lessons). On your desk, you should have a clear plan of actions that you perform during trading, from the analysis of the market to the closing of a trading position.
- The trader’s journal. The journal should be lined in advance; it must be filled in during the trading process—after opening and closing each position. It will not be possible to fill in the journal in the objective manner at the end of the day.
Also, I will specify that I recommend keeping your trading journal on paper. Yes, some people do it in the Excel; other people do it in Google Docs or in special programs on the computer, such as Evernote and so on. In my opinion, the best option is an ordinary piece of paper.
- A pen or a pencil to fill in the journal.
- A glass of water. In order to feel good, you need to drink water.
- Something that you can play with your hands. This item is not mandatory for everyone, but it helps me personally. You can use the wrist builder to warm up your wrists, beads, spinner, or spin a pen in your hands. The main goal is to use the fine motor skills of your hands, to relieve the psyche and concentrate. Try it; if you do not need it you can remove this item from the desk.
I trade for about 4 hours a day. During this time, I turn off and remove my mobile phone and any other unnecessary objects from the table. When there is one and the same set of objects on the table every day, this regulates the psyche in a certain way.
Trust me, the chaos in your head begins with the chaos on the table.
How to analyze the Trader’s Journal
During first 2 weeks, I recommend evaluating your journal in the following way:
Look at the «Compliance with the system» field and compare it with the result. Most likely, if you take trades over a long period, where you note non-conformity to your system, there will be more unprofitable transactions. Sooner or later, observing this dynamic, you will come to the conclusion that non-conformity to your system results in losses. Unfortunately, most often this only makes the trader follow his plan. Few people learn from words.
Compare the fields of «emotional state» and «compliance with the system.» Most often, non-compliance results from the wrong emotional state at the moment of opening a trade. Connecting these facts, we come to the conclusion that if you feel that you are in a bad emotional state, it is better to skip a trade. It is very difficult to do this, but if you do it on a demo account, as I recommend, the learning period will not result in financial losses for you.
Analyze the entire row as a whole. Look at each trade in an integrated manner and find what needs to be focused on the next day. If you notice in the «commentary» fields that you need to consider a certain trade in more detail, open the terminal and evaluate. Let me remind you that, in one of the following lessons, we will understand how to work with MetaTrader 4/5 reports.
The analysis of the trader’s journal rarely takes more than 10-15 minutes. It is necessary to do it at the end of each day, immediately after the end of the trading process or after having a rest. By the way, I highly recommend devoting time to sports immediately after your trading session. Sports will help relieve the stress, distract your mind from the trades of the day, no matter what they are, and will not let you sit down to recoup if the day was unsuccessful.
If you have some experience with trading, you can already line your journal today, create the simplest trading system, write out its rules on a piece of paper, make 10 transactions on a demo account and try to fill in the journal for the first time. I call on the rest not to worry because soon we will begin to talk in detail about the trading and work closely with the journal.
In the comments to this lesson, share how you arranged your workplace! I’m sure all the readers will be interested in it. See you at the next lesson, where we will study the main functions of the MetaTrader 5 (and MetaTrader 4) trading platform in detail.
Sincerely yours, Pipbear
Summary of the Lesson
- The trader’s journal and a blotter (transaction ledger) are not the same.
- You need to analyze the journal every day. It takes no more than 15 minutes.
- There should be nothing unnecessary in your workspace.