What’s the difference between successful and unsuccessful traders? For one, successful traders are very disciplined, while most new traders don’t understand the importance of discipline in trading.
One form of discipline that every successful day trader practices is keeping an accurate day trading journal. Not only is a trading journal necessary for finding profitable trading strategies, a trading journal might reveal psychological faults in your trading.
Create Your Own Day Trading Journal
Most traders create their own trading journals using Microsoft Excel spreadsheets. In fact, there are few professional trading journal solutions available, however, there are a few (including Trading Journal Spreadsheet) that I would recommend.
To create your own spreadsheet, you simply need to have Microsoft Excel installed on your computer. You can make a simple Excel spreadsheet that includes:
- type of trade (long or short)
- date and time
- % of profit
- commissions (if any)
- brief commentary
Obviously, you can add any metric that you want to track. My trading journal includes a score for each trade, for instance.
If you’re trading Forex, you will want to use a metric to track your pips; if you’re trading stocks, you would want to include a metric to track the number of shares that are traded per transaction.
Remember to always include a metric to track the percentage of actual money gained. Tracking pips only, for instance, is useless for determining actual profit and loss.
Also remember to include information about how closely you followed your trading methodology.
What You Need to Learn from Your Day Trading Journal
Your day trading journal should show you how much money you’re actually making. Wins and losses weigh differently in our memories; which is exactly why it is important to keep an accurate journal of each transaction.
Your journal should show you things like actual profit and loss, run-up/drawdown, whether you make more money going long or short, etc….
More importantly, the trading journal should track how well you followed your trading methodology. If you’re honest with yourself, this part of your day trading journal will show you if your losses are coming from your trading system or your failure to follow it correctly.
By now, the tremendous advantage that a day trading journal offers should be obvious. No day trader can truly understand his/her trading system or personal trading habits without one.
There’s a reason all professional traders practice this discipline; when you get serious about making money in the market, you will have to get serious about tracking and analyzing your trading. To that end, nothing is more helpful than keeping an accurate day trading journal.