Do you Need a Trading Diary?
(eToro Blog) One of the benefits of online trading (besides earning a profit, of course) is a permanent record of all of your trading activities. Online brokers do a great job of providing you with all of the facts and figures of your trades, profits, margin usage, losses, etc. That’s good for those people who loathe keeping track of the minutiae of the day’s events. But experts will tell you that there are several very good reasons for keeping a separate diary or journal of your trading activity that you might not have even thought about.
Not only will you have an historical record of all of your activity but that record will become your own personal data base. You will easily be able to see the performance of each trade, your successes and failures, which pairs were better performers for you, which time frames worked in your favor, etc. The journal can be as comprehensively analytical or as simple as you choose it to be. Because you can easily assess your strengths and weaknesses, you will be better able to plan for future trades.
As a planning tool, the journal will allow you to set parameters for your entries and exits, decide on your target profit, and your stop loss, and determine the amount of acceptable risks. Once you’ve put your thoughts or plants into words – whether in a real journal, or a PDA, or an online word document or some other software application – you can then put those words into action with a real trade, confidently knowing that you’ve already mapped out a strategy.
So now that you can see how your trading journal can keep your historical record and your future plans, the third benefit becomes apparent; you can assess your trading strategy or strategies to determine whether or not they work in a particular market environment. Depending on the comprehensiveness of your journal you can determine if your strategy performed or failed in a market which was trending or range-bound, for example. You can also judge whether a different time frame made a positive or negative difference. And you can assess whether your targets or stop losses were too optimistic or too conservative. Simply, the journal will provide you with an “Aha!” moment.
Now, whether that “Aha!” moment leads to something good or nothing at all is up to you. But your analysis of the journal’s content is the proof that your trading strategy might need some tweaking. As the most successful traders say, a good trader plans his trades and trades his plan, and the trading journal can help you do that.
Copyright 2012 eToro Blog