The Importance of a Trading Diary

Somewhere along the way I am sure most of us have heard the saying “mistakes are okay as long as you learn from them”. Well, this is preciously the reasoning behind starting a trading diary. A trading diary is usually a record of your trades; price that you entered, exited the trade, return, etc. However, one of the most important parts of a trading diary that often go overlooked is the reflection section. This is where you write a few sentences about the trade and what you learned.

“Why can’t we just make mental notes instead of a trading diary?” Rarely can someone make meaningful money with laziness but additionally it is a great visual log of your trades that can tell you in a glance whether or not you need to tweak your strategy, etc. Performing these checks on your strategy every few months is a great way to check in on your performance and how your trading strategy is working. Furthermore, your reflection section can help you learn from prior mistakes made in trades and avoid them in the future.

The trading diary is a gift when tax season comes around as well. Since you record your trades and the specific prices that you entered and exited the trade, entering your tax information should take no time at all. However, this is simply a perk, the real reason why we have trading diaries is to make ourselves better investors and/or traders.

Prof. Binary’s Trading Tip:Nowadays, a very easy and comfortable way to keep a trading diary is to simply setup a blog. You don’t have to be an Internet expert and purchase your own hosting. There are several online blogging platforms where you can setup your trading blog for free. I recommend WordPress or Google’s blogging solution Blogger.

For serious traders, I recommend a little more work for your trading diary. Each night, analyze the markets you trade and come up with a consensus of where the price action could be heading. This could be labeled the forecast section. If you have a longer time horizon, analyze your markets using the weekly charts to get a more longer term picture of the market strength. Regardless of the timeframe, this section will be your blueprint as you trade throughout the day, week, etc.

Another important section is the watch list section. Depending on what you trade (stocks, forex, futures, bonds, etc), analyze some specific trades that are showing a potential trading set up. This section will help you keep better track of your individual research. If I am trading futures, it can be hard to remember the specific commodity and the specific contract. Make it easy on yourself and write down some notes on what you saw in the charts and refer to it at a later time.

Another good section to have is a rules section. This section is where you can visualize your rules when comes to trading. These rules should include your risk tolerance or risk management. This will remind you of your allowed capital per trade and where to place stops to protect your capital. Furthermore, it should have your specific rules in trading. Refer to this section often to make sure you are following your own guidelines. This will help you monitor your trading to make sure there is no violation of rules.

As you can see, it does take some time to tend to your diary but it is an important tool that all traders should have. If you are serious at becoming a successful trader, then you absolutely must have a trading diary. When you are trading, emotions can sometimes trump reasoning and that is why it is good to have your journal to use as a reference and a reminder of your goals. Trading is all about giving yourself a probable advantage of success and a trading journal will help give you that advantage.