What is the most overlooked mistake among Forex traders?
It isn’t emotional decision-making, overtrading or excessive leverage. Although all of these things can drastically improve your trading if managed properly.
But I would guess that most traders know about these topics, so they aren’t necessarily “overlooked” mistakes. Whether or not they choose to adhere to best practices is of course another story.
Not keeping detailed records of trades is arguably the biggest pitfall among traders. It may seem like a trivial exercise, to keep track of what you trade and how you trade it, but I assure you that the benefits of the exercise go far beyond simply remembering what you traded last week.
Do you keep good records of your trades?
If so, I bet you are in the 10% of traders who do, so cheers to that. For the remaining 90%, this article was written for you.
By the end of this article you will know why maintaining a trading journal is a must if you truly want to become a successful Forex trader. I will show you the exact journal that we use in our community and also share with you the 13 data points we track for each trade.
I will be using the online Forex trading journal that I developed as an example throughout the article. This journal is available for free to those who join our private community of price action traders.
Let’s start journaling!
What's in It for Me?
One reason I believe that starting and maintaining a proper trading journal is often overlooked is because it isn’t considered to be fun. After all, you trade because you love to trade, not because you enjoy keeping records.
But here’s the catch, in order to really enjoy trading, you have to keep good records, and it all starts with a proper Forex trading journal.
Don’t believe me?
How about this question – who has more fun, the struggling trader or the one who turns a consistent profit?
Of course the trader who is consistently profitable is going to have more fun, and I can guarantee that he/she keeps a detailed journal of every single trade taken.
With this in mind, we can make the argument that a proper journal will not only improve your trading performance, it will allow you to enjoy trading more than you already do; and who doesn’t want that?
This idea alone should make the tedious and seemingly boring task of record keeping a bit less so.
What You Measure Grows
So now you know that a trading journal will not only improve your trading performance, it will allow you to enjoy Forex trading to the fullest.
But how does a simple trading journal accomplish all of this?
It doesn’t, at least not by itself. A journal left sitting to collect dust certainly won’t help you. You have to set it up and maintain it in a way that compliments your trading and thus gives you an advantage.
We will get into the details of how to set up your journal shortly, but for now I want to focus on the many ways that something as simple as tracking the trades you take can vastly improve your trading.
We all know that discipline is a huge factor when it comes to trading. It’s discipline that keeps you within the limits of your trading plan, just as it’s discipline that allows you to let your winners run and cut your losers short.
The simple act of maintaining a trading journal will help reinforce discipline in your trading. That’s because it takes discipline to enter the details of a trade before putting on a position. It also takes discipline to record that trade once closed, especially if it turns out to be a loss.
Patience is another trait of every good trader. As I always say, when it comes to trading Forex, less is more. The fewer trade setups you take each month, the better off your trading performance is likely to be at the end of the month.
How does a Forex journal help develop patience, you ask?
By forcing you to analyze every detail of a trade setup before you can pull the trigger.
The development of the internet combined with the free trading platforms available at most brokerages have made it extremely easy to place a trade, perhaps too easy.
But when you are forced to enter the details of that trade beforehand, including an annotated screenshot of the setup, it forces you to slow down and really think about what you are doing.
You can no longer act spontaneously based solely on emotion, which is never a good idea as a trader.
One of my biggest fears with starting Daily Price Action was that it would offer some traders a scapegoat if a commentary of mine didn’t play out in our favor. In other words, those who enter trades simply because I post about them would point the finger at me if they lost money rather than taking responsibility for their actions.
I have yet to receive an email to this affect, but that doesn’t mean that these traders don’t exist. But I would be willing to bet that those who think this way are not maintaining their own trading journal.
What makes me think that?
Because if they had a journal they would have been forced to enter key data points prior to placing any capital at risk. Once entered, it becomes very difficult to place blame elsewhere if the market decides not to play along.
So even if you follow a trader such as myself, it’s imperative that you maintain your own journal. It will help solidify the trade idea so that you can match it up against your own criteria before placing any money at risk.
The sheer number of financial instruments at our disposal as traders can be daunting. Even the number of currency pairs can quickly rise above 50 when you start considering some of the exotics.
How does one keep all of this information organized?
You guessed it, a trading journal.
Not only should you be entering the details of trades you take, both pre-entry and post-entry, you should also be tracking a watch list of potential setups. This will help you stay focused during the week so that you don’t stray from your plan of attack.
At any given time I have two to five price structures that I’m keeping an eye on, just waiting for the right time to strike. The best way for me to keep track of the details for each potential setup is to enter that information in my journal.
Trade like a fund manager
I recently wrote about the importance of trading from the daily time frame, noting that it’s how the “big players” in the industry trade. The idea being that if you want to eventually become a powerhouse in the Forex market, following on the heels of traders such as George Soros or Bill Lipschutz is not a bad place to start.
In a similar way, we can look to these mega-successful traders when it comes to keeping a trading journal. After all, one of the best ways to find the path to success is to emulate those who have already traveled down that path.
How do I know for sure that these traders maintain their own records?
I don’t. But try to imagine either of these guys risking millions or even billions of dollars on a trade without keeping detailed records of that risk.
Looks pretty silly, doesn’t it?
So, while the idea of trading like a fund manager is not a direct benefit of keeping a journal, knowing that the big players in the industry do it should be enough to motivate you to develop and maintain a journal of your own.
What Exactly Should Your Trading Journal Include?
Beginning a new routine can be daunting, especially if it’s something you aren’t very familiar with. One of the first questions that probably comes to mind is…
What exactly should I be tracking?
First and foremost, know that tracking too much data is better than not tracking enough. However you also don’t want to make your trading journal so involved that maintaining it becomes a painful task.
Another key point when it comes to what you should be tracking is that it all depends on you and your trading style. Some traders feel the need to capture and annotate each chart in their journal before putting on a position, while others may do perfectly well without this step.
It all depends on what you feel most comfortable with.
To make things easy, I’m going to use the Forex trading journal that comes free with a membership to Daily Price Action. This way you can see exactly how I prefer to have things set up.
That said, do note that the data below is hypothetical and for example purposes only.
Every good trading journal should include a watch list. These are the currency pairs you are keeping an eye so that when a favorable setup comes along, you have a plan and are ready to go.
A good example might be a currency pair that is consolidating within a wedge pattern. Depending on the size of the pattern, you might have to wait for several days or even weeks for a breakout to materialize.
By keeping a watch list you can develop a rough plan of attack for when the trade setup confirms.
Here is how I have my watch list configured…
As you can see, it’s broken down by the date entered. After that each potential setup is separated by currency pair, along with key data points for each one.
Those data points include…
- Currency Pair
- Setup Characteristics
- Potential RR
- Time Frame
This is the information I like to keep readily available on the dashboard. This makes it easy for me to see which currency pairs are of interest at any given time as well as the price action required to confirm the setup.
If I click “view” for any one of these I get a more detailed look at the potential setup.
Let’s take a look at EURUSD…
Notice that the information on the left is similar to what we saw before, but now I get to see an annotated chart to remind me of exactly what it is I need to watch for.
One thing before we move on. Take note of how simple I keep this process. The window above consists of just 7 data points and 2 annotated charts. To include the same information in your own trading journal would take no more than 10 minutes of your time.
Now that we know what we are watching, let’s move on to the actual trades.
Similar to the watch list, the trading summary lists several key data points on the dashboard. The main exception here is the characteristics field, which is not required on the dashboard as I am already in the position.
Here is how I have my trading summary configured…
Notice how the summary is separated by open trades and closed trades. This allows me to quickly view my current exposure as well as past trades taken.
The data points I focus on here are as follows…
- Currency Pair
Just like a setup on the watch list, I can find more information on a particular trade by drilling down to the details page.
Here we can see a short setup that occurred on GBPJPY.
From this window I can see the fields that we saw on the summary window as well as the money risked and planned risk to reward ratio.
Now here is the great part about this particular Forex trading journal. Once the trade is closed, I can change the status from open to closed and enter more detailed information about the result of the trade.
Here are the additional data points that I track for trades that are closed…
As you can see from the image above, the additional data points for a closed trade include…
- Pips +/-
- Exit Price
- Actual Risk to Reward
- Exit Date
So there we have it. The watch list is for tracking the potential setups that may or may not materialize while the trade summary tracks both open and closed positions.
The most important takeaway from all of this is how simple it can be to maintain detailed records. You don’t want your journal to become overburdened with data to the point that maintaining it becomes a headache.
It should be just enough information to capture the essence of the trade, but not so much that it distracts you from what’s important.
Make Do With Less
I realize that not everyone will be able to join Daily Price Action in order to get access to the trading journal you just saw, and that’s okay.
While the DPA journal is more robust and effective than most others I have seen, it isn’t absolutely necessary. Using something like Microsoft Excel to create your own journal is a great starting point. In fact it’s how I started tracking my own trades before I developed the one you just saw.
Don’t have Microsoft Excel?
No problem. A simple notepad will get the job done. You can even print your charts out and annotate them by hand. It all comes down to finding what works best for you.
Regardless of how you decide to do it, just know that something is better than nothing.
Take the Challenge
They say it takes 21 days for an activity to become a habit. So in the spirit of making good habits, why not spend the next 21 days tracking your own trades using the data points we just discussed?
I can’t guarantee many things in the world of Forex, but one thing I can guarantee is that keeping detailed records of your trades can only improve your trading performance.
So why not start right now?
Regardless of how you choose to enter and maintain your trading records, keeping a trading journal is a critical component if you wish to succeed as a Forex trader.
The most important thing to keep in mind when developing your own system of record keeping is to keep it simple. Otherwise it will quickly become a chore rather than a productive exercise.
Always remember that a journal will do more than just improve your trading. It will allow you to have fun again by making your trading more effortless, a goal that should be at the top of every Forex trader’s list.
Do you currently maintain a Forex trading journal? If not, did this post help you better understand why it’s important and how to structure one for yourself?
Let me know your thoughts in the comments section below.