While the idea of keeping track of every single trade idea, decision, and outcome seems tedious, it could hold the key for forex trading consistency and long-term profitability. Here's why it is important to develop the habit of maintaining a trade journal and its benefits for your trading psychology.
A complete trading journal not only contains the pertinent trade details, such as entry and exit prices or the number of pips gained or lost, but it should also indicate notes on your trade decisions. This covers trading psychology details such as your confidence in taking the trade setup, your reaction to expected and unexpected market events, your decisions midway through the trade and the rationale for those. By keeping track of these, you can gain better insight on how your emotions and mindset are influencing your trading performance.
Keeping a trade journal is similar to a professional athlete taping games and reviewing them. Too often there are details and plays missed when simply trying to recall a game from memory so watching a play-by-play tape could reveal crucial strategies or tendencies that can lead to improvements. Whether it's football, basketball, or even performance sports such as gymnastics, elite athletes often refer to tapes to analyze their performance and figure out what they need to work on.
When it comes to forex trading, some traders also try to have a recording of their trades, particularly those who are into scalp trading. Others resort to having a trading mentor or coach who can provide a rundown of how a trade played out and the decisions that influenced profitability. For those who don't have the resources or time to do so, keeping a detailed trade journal is a viable alternative.
In reviewing a trade journal, you can be able monitor the common mistakes you make and take specific action steps to avoid them. For instance, if you notice that you are setting your stop losses too tight when trading news releases, you can be able to remind yourself to add more leeway next time. If you notice that entering trades at market makes you more nervous and uneasy with your trading decisions, then you can make it a point to go for limit entries on your next trades to ensure that you have a better and more relaxed trading mindset.
From there, you can gain more confidence in taking your usual trade setups or sticking to your trade strategies. Having a trade journal also allows you to keep track of the numbers and statistics, adding to the assurance that your plan can generate consistent profits. With that kind of confidence, you can focus your energy into executing properly instead of doubting your trade decisions.