Trading is a goal-oriented and gut-wrenching endeavor. As manual traders who will be executing trades at intervals, we need a journal to keep track of trades, stay focused, and measure performance.
Through journaling, we can keep track of what works and what doesn’t. More importantly, maintaining journals keeps us disciplined and we can audit irrational trading.
As mechanical traders, keeping a journal helps you refine your trading methodology when necessary, but it also sets you on a path towards being indifferent when setting your trade markers.
Obviously, if you have a trade broker who does this, they will send you a transaction history, in which you may opt out of journaling, however, it is good practice to do when and if you decide to trade on your own.
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Features of a Trading Journal
Your trading journal should contain your pre-trade and post-trade activities. Through your trading plan, you will most likely begin to see patterns emerge as you develop your methodology. And with consistency, impartial decision making, and a little luck, you will also see profits from your trades.
Below are five recommended features of your trading Journal:
- Potential trading zone
- Entry trigger
- Sizing your position
- Exit strategy / Trade management rules
- Looking back on past trades
Potential Trading Zone
Your trading area is similar to a call to action button in a digital marketing campaign. It should go without saying that you should have a valid reason for entering a trade in the first place.
The multiple time frame model can serve as indicators for a good entry point. This is where we look for developing regular or hidden bullish/bearish divergence. Harmonic patterns and general chart patterns can also help towards gauging an area.
Using the combination of time frame and harmonic patterns will help you make smart decisions for an entry point into your trading zone.
Entry Trigger
It’s crucial you trade like a sniper. Once you’ve located your trade area, point and pull the trigger. Snipers don’t ever close their eyes and hope for the best. They are calculating, impartial and know what the job is – this must be your mentality.
Price action patterns, such as accumulation patterns are excellent triggers. From our experience, the most reliable is a breakout of bearish accumulation and breakdown of bullish accumulation. However, if you are practicing on a demo account, definitely find your boundaries and experiment with other candlestick triggers to see what works.
Writing these down in your journal helps identify what works, or doesn’t work as a trigger. Remember, a combination of the trade area and entry signal gives a higher win rate, but deploying with just a triggering technique could spell doom for your trading portfolio.
Sizing Your Position
It is essential to determine what percentage of your capital you are willing to expose per trade. This will depend on your risk appetite but we recommend choosing a position that enables you to stay longer in the market before your profitable trades start to kick in.
Remember, you are a trader, not a gambler! Do not put all your chips on the table. The market can pivot when you’re not looking so make it a habit to prevent exposing more than 1% of your account per trade, and certainly not more than 5% for your entire position.
Exit Strategy and Trade Management Rules
Your exit strategy is, in fact, more important than your entry strategy because when you’re out, you want to make sure you are leaving with a profit – or a less painful loss. With sniper thinking, the exit strategy helps you quickly let go of a losing trade because it’s part of the plan.
One exit point to consider is when a price closes below critical support or above significant resistance levels. You can set such breakout or breakdown points before your primary automatic stop-loss target.
It’s essential to plan your exit strategy before placing your trade. It would help if you accounted for every possible scenario.
Looking backward on Past Trades
After entering and exiting your trades, be sure to reflect on your trade buildup. Your journal of these things will help you see the roadmap of your progress. Here are some questions you should be asking yourself.
How well did the trades do?
Did your position size align with your chosen reward-to-risk ratio?
Do you see where you could improve your entry timing and level?
Did you experience FOMO and jump too soon into a trade?
Was your confidence shaken enough where you did not pull the entry trigger, or perhaps you exited too soon?
Can you avoid specific news announcements that often whipsaw your trades?
How well was your trade managed while it was open?
What can you do differently going forward?
Journaling maps out your results, hones your trading skill and helps define your sniping ability. Observation, proper tools of the trade, knowledge, a level head… These are what you need to refine your exit level, entry level, and position size going forward because the end goal is to make a profit.
Disclaimer
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