Tracking these five measures in a trading journal can provide some objectivity amid economic uncertainty.
One of the most alluring parts of trading is how exciting it can be. Watching your profits change throughout the day can make your heart race. Unfortunately, adrenaline isn’t the most reliable tool for maintaining a consistent investment strategy.
Keeping a trading journal can be an effective way to overcome emotional influences when making decisions, even during times of economic unpredictability. Tracking the market data and your personal performance metrics provides objectivity and psychological clarity. Moreover, reviewing your trading journal can limit recency bias and highlight long-term trends.
While healthy self-criticism can be valuable, a trading journal may also help you recognize your own victories and celebrate your strengths. You can build your own trading journal using a spreadsheet or notebook. You get as much out of your trading journal as you put into it, but we recommend measuring these five categories in your journal.
ENTRY INFORMATION FOR THE TRADE
Knowing where you started is just as important as the final result. Track the date, time, entry price, and the account balance at the start of the trade. Additionally, you may want to add any other information about why you entered the trade, such as your logic or your mood.
ENTRY AND EXIT RULES
Having an exit strategy at the start of the trade can reduce anxiety. In your next column, mark your stop-loss point in your journal. Not only does this give you a plan, but tracking it also helps you see how close you were to the actual exit price.
Next, determine the minimum risk or reward for your plan. What are the weekly, monthly, or annual profit goals? Once you have set your goals, you can determine your risk ratio.
After initiating the trade, note the relevant market conditions. Prior to the trade, track the price action and any reactions you may have to it. If specific economic news or events influenced your decisions, be sure to write those in the journal, too.
VALUE OF THE PROFIT OR LOSS
Track the actual exit prices, the account balance at the end of the trade, the percent of the account risk, and the total profit or loss. In another column, note if it was a winning trade, losing trade, or a “break even” trade.
COMMENT SECTION FOR PSYCHOLOGICAL FACTORS
This is where you can note the mental and emotional parts of the trading process. Write down how much you mentally prepared for the trade, how you felt during and after the process, and if stress affected some of your decisions. For those looking for more concrete data to measure, assigning yourself an emotional discipline score can be a more logical metric. On a scale of one to five, “one” indicating you felt completely dispassionate and “five” meaning you were emotionally charged, give yourself a score for each trade.
Once you have tracked these metrics, review the overall trends. If your spreadsheet doesn’t automatically calculate these, take note of the overall trade wins, trade losses, and break even trades. Then, analyze the total profits or losses, the average risk, and any overarching trends concerning the motivating factors for your trades.
The markets may be out of your control, but you can control your decisions within them. Your trading journal is your most powerful tool for your trading strategy. Please feel free to visit our website to learn more.
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