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4 Reasons Why You Need A Forex Trading Journal

You may wonder why it is necessary to keep a separate trading journal, since just about every broker provides a real-time record of your trades. In fact, one could argue that the broker's record also keeps track of available buying power, margin usage and profit and losses for each trade made. Still, there are benefits to keeping a separate trading journal, and here is why. (The line between profitable forex trading and ending up in the red may be as simple as choosing the right account. Check out Forex Basics: Setting Up An Account.)

1. Historical Record

3. Methodology Verification

4. Mind Pattern Modification (Method to Change Habits)

Having a journal that gathers your statistics sets up a trading plan by defining parameters of action needed, provides a rear view mirror so that you can measure how well you executed each trade, and most importantly provides you with the feedback to develop and evolve your trading skills, is an extremely valuable tool for becoming successful. You will find a good trading journal to be a best friend and mentor as you make progress. (Market hours for Tokyo, London and New York determine volatility peaks. Find out how, in The Forex Three-Session System.)

The Two-Part Journal

  • A chronological columnar list of trades that you can total and aggregate, so that you can have a record of all your efforts. This is best accomplished by hand writing in the columns all the pertinent data. Of course, you can keep records using an Excel spreadsheet that can automatically do the math for you, and which will remove simple calculation errors. This depends on your own abilities in spreadsheet modeling.

A printout of the actual chart you used to determine the trade, indicating your entry level, your stop loss level and your potential profit level, should be clearly marked up on the chart. In addition, you should record your reasons for taking the trade. Keep a section on the chart where you can indicate the following:

  • Fundamental Reasons (Example) "I believe the dollar will continue to weaken, due to the Fed's long term policy of keeping interest rates lower than trading partners and maintaining a high trade deficit."
  • Technical Reasons (Example) "The dollar has retraced back to a resistance level that provides an opportunity to sell the dollar."
  • Sentimental Reasons or Market Psychology (Example) "Traders are reducing their appetite for risk based on the extended run in commodities and the potential for a correction, as well as the lackluster performance of the U.S. economy, as measured by the weakening GDP data and the poor job creation numbers."

Note your comments on the actual printout or screen capture of your chart. Finally, you should set up a journal for each type of trading methodology or system you employ. Do not mix systems, as the results of your trades will derive from too many variables and will then be inconclusive. Therefore, if you have more than one trading system or methodology, you should keep a journal for each one.

Every trade you record should be based on only one particular system, which will then give you the ability after 20 trades or so to calculate the expectancy or reliability of your system.

Here again is the expectancy formula:

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