A forex trading journal is needed to improve the effectiveness of your trades. How to build a good journal? This article will explore the topic and give you a real journal from a successful system with small capital.
No matter how experienced you are in forex trading, it is always important to learn from your previous trades. To evaluate is one of the ways to achieve better trading in the future. For this purpose, you need to compose a forex trading journal. It may be a difficult task to do, but if you are consistent enough, you will have an organized trading journal that can be used to evaluate your trading routines.
- 3 Key Factors of a Trading Journal
- Why is Evaluating Forex Journal Trading Important?
- How to Evaluate a Forex Trading Journal?
- A Real Trading Journal of a Small Capital Trading System
Here is an example of a forex trading journal and its components:
- Day: The day of the trade.
- Date: The date of the trade.
- Entry time: The time of the trade opened.
- Entry price: The level at which the trade is started.
- Setup: The trading signal and confirmation used to place the trade.
- Currency pair: The currency pair used.
- Stop Loss: The level at which the loss is limited.
- Profit target: The level at which the profit is targeted.
- The capital amount used: The amount of capital used.
- Trading volume: The amount of lot used.
- Exit price: The level at which the trade is ended.
- Exit time: The time of the trade closed.
- Profit/Loss: The total profit or loss gained.
- Pips Achievement: The number of pips earned/lost.
- Note: Extra information, usually related to psychological factors.
Aspects from 'Day' to 'Trading volume' are completed once you open or enter a trade. Meanwhile, the 'Exit price' to 'Note' are completed after you close the position. A forex trading journal is arranged on an MS Excel spreadsheet or a notebook. You can also save the screenshot of the price setting and indicator setups as additional information.
In general, forex trading journal is an output of 3 trading plan components: the trading system, money management, and the psychological management. Therefore, the trading journal should consist of a summary of those things in details.
3 Key Factors of a Trading Journal
Everyone has different styles in composing their forex trading journal. So, no need to worry if other traders do not conduct the same method as you. You can either make use of the data components above or modify them by yourself. There is no standard as the journal is for your own use. Make it as simple as possible is probably the only recommended tips relevant to all traders. If you still need a guide to make a forex trading journal, here are the steps:
1. Include the two important things.
There will be more variations in composing journal points, but there are two important points that you cannot miss in composing the trading journal. They are Entry/Exit prices and Profit/Loss gained.
See also: All About Forex Entry And Exit Strategy
2. Make it in a simple format.
Make your forex trading journal as simple as possible. This point is quite significant, especially for the new traders who just start to trade. With a simple journal, you can note down any development re-read the trading journal easier.
3. Jot down additional notes.
Make sure to include the blank part for noting down the additional information. For instance, what factors motivated you to make a trade, what indicators used in trading (Moving Average, Stochastics, Relative Strength Index, or others), how is the market situation (ranging, trending, or breakout), and other information that might be useful when you review the previous trading positions.
Why is Evaluating Forex Journal Trading Important?
When you review your trading journal, you may be impressed by how good or bad is your journey as a trader. Besides reflecting on your previous trades, the journal also monitors your successful traits as a trader. As a result, you will be more effective in trading.
Do the transactions, note down your trading, and keep it for the future evaluation. It is always beneficial to write down your transactions in the journal. By writing down all of them in the journal, you practically help yourself. Furthermore, the trading journal can help you repair your mistakes and weaknesses in the past. It's because the forex trading journal is a complete history of your transactions, so it is the best tool for evaluating your trading performance as a whole.
MetaTrader 4 actually offers a special feature to record all of the results of your transaction. The journal of MT4 is a quite accomplished feature because it covers various data under the Detailed Statement. However, the journal is actually prepared and shared for presentation material about the trading system to an investor. No special elements can be used to personalize it as your own notes to analyze the psychological factors.
A basic forex journal trading does not need to be as detailed as in the MetaTrader 4's Statement. What's important is you can input crucial things before, during, and after the trades and review them for improvements.
How to Evaluate a Forex Trading Journal?
After opening some trading positions, you can summarize the complete information about your habit in trading and how you respond to the price movement. Then, simply evaluate the forex trading journal by figuring out what makes your trades work and keep doing it. Next, find out the factors that cause the failure and try to prevent it on the next trades.
How to decide whether the journal is helpful for your trading? You can classify the data into smaller categories such as the classifications based on the days, currency pairs, and so forth. If it is divided into smaller groups, you may obtain many variables that can be analyzed and developed.
Afterward, you can start to evaluate your journal by arranging some critical questions from the journal:
A. The Trading Time Category
The questions in this category relate to things related to the trading time. Based on the questions, you can derive a conclusion of when is the best time to earn money from the market.
- Does this position earn equal profit in a week? Or is it only profitable on certain days? If so, on what days are they?
- Does the position cause equal losses in a week? Or does it only happen on certain days? If so, on what days are they?
- What is the average time to hold the trading position until the Take Profit is reached?
- What is the average time to hold the trading position until the Stop Loss is reached?
- What is your conclusion based on this time analysis?
- What can you develop from the forex trading journal based on this time evaluation?
B. The Currency Pair and Money Management Category
In trading, money management is one of the most important elements to face uncertainties in the forex market. A good trading strategy is not enough if your money management is not set properly.
The questions for the currency pair and money management evaluation include:
- Does this position earn equal profit in various currency pairs? Or is it only profitable in certain pairs? If yes, what pairs?
- Does this position earn equal loss in various currency pairs? Or is it only profitable in certain pairs? If yes, what pairs?
- How much is the average of the Take Profit used?
- How much is the average of the Stop Loss used?
- How much is the percentage of positions successfully closed with the Take Profit?
- How much is the percentageof positions successfully closed with the Stop Loss?
- How much is the Risk/Reward Ratio that earns more profit?
- How much is the total of profit at the moment?
- What can you conclude from the analysis of the currency pair and the money management?
- What can you develop from the evaluation based on the money management?
C. The Trading System Category
The questions in this category deal with the error that happened in the trading system. Most of them focus on the discipline of running the trading system. The questions are:
- Have you stayed discipline in following the trading setup?
- If you haven't, how many positions are placed without following the trading setup?
- If you have, how is the profit/loss ratio?
- Is there any part of the trading system that has been developed?
- Should the whole system be shuffled totally and changed into a new one?
Without classifying and analyzing the forex trading journal into small categories, it will be difficult for you to build the knowledge, conclusion, and actions needed to improve your trading performance. You can classify and analyze such a way after completing your forex trading journal in a certain period of time.
Furthermore, composing the forex trading journal can improve your confidence level while trading. You can also attach the forex trading journal on your trading profile as a killing weapon should you plan to attract investors in the future.
A Real Trading Journal of a Small Capital Trading System
People say that forex trading is only for the rich because it involves a lot of money. They still don't believe that forex trading is also available for traders with small funds. Is that true? This trading journal is proof that trading can be done by using capital as small as USD50. With the proper technique applied, without complicated tricks, and by being consistent, you can do it.
1. Choosing the Forex Broker
To do forex trading with small capital, the first requirement is to find the suitable forex brokers. The characteristics are as follows:
- Allows a minimum deposit of USD50.
- Provides trading with micro lots (0.01).
- Charges no commission.
- Offers low spreads (less than 2 pips for major pairs).
2. Setting Up the Account
For the experiment, a trader opened a mini account in a broker providing Trading Central signals. The account details are:
- The Leverage is 1:100.
- The account currency is USD.
- The first capital is USD50.
- The platform used is MT5 Mobile App.
In short, the trader only needs a smartphone, a USD50 capital, and a good internet connection.
2. The Trading System
- Method: Day trading.
- Currency pairs: EUR/USD, GBP/USD, and AUD/USD.
- Risk/reward ratio: 1:1.
- Profit target per trade: anywhere between USD1-3 (10-30 pips).
- Trading volume: 0.01 lots per trade.
- Maximum number of trades opened: 1 trade at a time. You can open one more trade if the first trade shows a positive floating or has been closed.
- Trade frequency: 0-3 trade per day. Avoid opening trade repeatedly on one pair on the same day.
- Indicator: Trading Central Signals.
3. Entry and Exit Rules
Since the experiment uses simple money management for beginners, you may not apply any indicator. The only thing you can use is the Trading Central signals that have been integrated for free in the broker's platform. The signal will appear as below:
You don't need to use all signals, but apply some selectively with the following entry rules:
- Open a position in Tokyo or London session, max. 1-2 hours after the session opening.
- Open a sell position if the Daily signal is bearish and one or both signals from the ST and MT are also bearish.
- Open a buy position if the Daily signal is bullish and one or both signals from the ST and MT are also bullish.
- All the trading positions are executed with the Market Order, not the Pending Order.
- Be cautious when the Daily signal is sideways or is the opposite of ST's and MT's signals. Keep in mind that you don't need to trade every day. If the situation does not follow the rules, staying away is better.
- Avoid opening positions during the New York session. This period is better for closing positions.
Next, the exit rules are as follows:
- Set the profit target between 10-20 pips or until the price touches the limit of Daily Support/Resistance in the Trading Central SR plot (shown with the red lines in the graphic).
- After opening a position and setting the profit target, close the platform, and leave it until the price reaches the target and triggers your profit target. You can check the chart a few times, but you don't need to watch the application the whole time. You can set the profit target manually after earning at least USD1.
- Open a trading position without a Stop Loss. However, don't hesitate to cut loss if the price movement has reached the nearest Daily Support/Resistance in the Trading Central SR plot. If you cannot follow through with the cut loss, you should set Stop Loss automatically.
- Avoid opening position a session before the release of high impact news related to central banks' interest rates and speeches. If you have a floating position, trigger your take profit or cut loss early. Check the forex calendar every week to follow what happens in the market.
- All of the floating positions have to be closed before the end of the New York session on the same trading day.
4. The Result
This trading strategy has been applied successfully by a trader. The trader tried this strategy for a week and they managed to gain USD14.08 without any loss positions. Their profitability is about 28% from 11 closed positions. Here is the account history:
Most of the profits were from manual take profits and the rest were earned from pre-determined take profits. Early take profits were conducted twice (before the position gained USD1) because of a central bank event and a misplaced position due to human errors. Sounds interesting?
If you are attracted to apply this system, please take notes that the experiment was only conducted for one week so the data sample was not quite relevant for long-term implementation. Also, the near 30% profitability with no loss might be due to the good market condition during the experiment week, and it does not happen all the time.
Words of advice, make sure to put a long-term perspective in your vision instead of just instant gratification. It is not guaranteed that you will always be free from loss. Try it in a demo account for a longer period of time. If you are not familiar with mobile trading, it's better to take your time first to practice with it.