Benefits of a Day Trading Journal
There are a number of benefits to keeping a trading journal. These range from understanding and refining your trading, to controlling emotion and discipline.
Below are some of the major benefits of keeping a trading journal:
1. A Day Trading Journal Will Help You Develop Your Strategy
If you don’t reflect on your trading, then you won’t know what works and what doesn’t.
Finding trades with the best success rate, allows you to focus on and refine your strategy and monitor its development.
You might think a particular type of trade is most successful when in fact there are better setups that are already working for you.
By finding out which parts of your strategy work, you can build on the skills associated with them. Understanding what’s not working will help you eliminate any weaknesses.
If you find which parts of your strategy work you can build on that skill. Understanding what’s not working will help you eliminate those weaknesses.
This will help you build a stronger trading strategy with fewer weak points. You make your decisions based on data, not your opinion which may be biased or just wrong.
2. A Trade Journal Will Help You Measure Your Strategy
Along the same lines, a trading journal helps you measure how well your trading strategies work.
You will be able to put percentages and dollar figures to your performance, and compare results in an organised layout.
This can tell you whether you’re meeting your trading goals. You can track this performance along your journey to visualise your improvement.
3. A Day Trading Journal Will Define Your Strengths and Weaknesses
No two traders are alike and we all have our own strengths and weaknesses. It’s important to recognise those strengths and weaknesses and actively tailor your strategies around them.
Using your trading journal, you will be able to identify patterns. You’ll notice what leads to your winners and to your losses.
Is there a particular area you need to work on? What strengths should you be focusing on? Do you need to drop something from your strategy entirely?
4. A Day Trading Journal Will Help You Build Discipline
You should already know the rules of your trading strategy and be able to identify when you do the wrong thing.
Being truthful and committing mistakes to a trading journal will force you to acknowledge those mistakes.
This is your chance to analyse why you made that mistake and what you should have done differently.
5. A Day Trading Journal Will Keep You Accountable
Be honest with yourself and think about what you did wrong in a trading session. This will ensure you are aware of your mistakes and help you own and rectify those mistakes.
When you consistently review your trades, all of your mistakes and rule breakings are on display. If you’re honest with yourself, you have nowhere to hide from them.
It’s especially important to ensure you follow the rules of your trading strategy. If you identify that you have broken a rule, note the emotion that caused you to break it.
6. A Day Trading Journal Will Help Control Your Emotions
A trading journal isn’t just a place for statistics. It’s also used to understand your emotions and the thought processes behind your decisions.
Looking at why you made a mistake is as important as identifying that you made it. If you don’t know the reasons for your mistakes, it is difficult to eliminate them from your behaviour. Verbalising your emotions allows you to objectively recognise them, which in turn will allow you to assess whether they are positive or negative in their nature.
Consider the following examples to note:
7. A Day Trading Journal Will Improve Risk Management
A risk management system in trading is highly important. Risk management is often the difference between being profitable or not.
A trading journal will help you understand what risk you put into the market and what reward you reap.
If you notice an imbalance between what you are risking and what you are making, then you know you have a problem.
Calculate your average winners and losers and ensure the winners are larger. Doing this makes it easier to become a profitable trader.
Adjust your risk if necessary, so that you take smaller positions. It’s important to note that without a trading journal you might not recognise when you have larger losses than winners.