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Nov 20, 2020, 1:28 PM GMT

Top Three Reasons Why You Need to Keep a Trading Journal

Perhaps you are just a newbie making your first steps as a trader on the global capital markets, or you could be a seasoned vet who has survived many turbulent years coping with the bulls and bears; whatever your level of expertise is, you have almost certainly heard about the importance of keeping a regular trading journal. While there is no 'Holy Grail' of trading, the one thing that is promised to you is to fail unless you keep track of your progression as a trader.

It is precisely the role of the journal as a reliable benchmark of improvement that makes it so vitally important. There are three main reasons as to why you should keep such a journal regardless of your experience level.

First of all, it allows you to become more precise in the execution of your trades. The most apparent reason of them all is also the most widely neglected. Most traders know that they should keep track of their entry and exit levels of every trade they execute, and it is perhaps precisely because of this obviousness that many of them do not do it.

The market is fluid, and trading sentiments change frequently, which is why even the best traders cannot allow themselves to use the same old strategy without making periodic updates to match the latest changes of the market dynamics. A tightly maintained journal would enable you to catch even the more subtle changes in the underlying sentiment, which, in turn, would allow you to make the necessary modifications before his strategy becomes obsolete.

Second of all, a sound reflection over your past performance record would allow you to distinguish between perceptions, opinions, and facts. Many traders approach the market with many preconceived notions about trading, which distorts their judgement. For instance, if you already believe that the Bitcoin is going to climb to $ 20 000 before doing the necessary research, you are bound to find individual pieces of evidence that substantiate your theory. This leads to self-delusions and frequent losses.

Instead of trying to find evidence to fit your assumptions, you should build your theories based on the underlying evidence. Good traders know how to minimise the impact of their biases on their trading decisions, which is one way of achieving consistency. By examining your journal entries, you are going to be able to evaluate your thought process in hindsight, which would consequently teach you how to make better judgements.

Finally, by putting down your thoughts and justifications for executing a particular trade the way you did, you are going to be able to discern the level of impact that your emotions have played on your decisions-making at that time. In other words, traders who keep track of how they felt prior to opening a given trade, would have a better chance of discovering whether or not they have a proper trading attitude.

Keeping a trading journal would allow you also to determine whether you are a type of trader who follows the current possibilities for profit-making; is fearful of missing out on a good opportunity, or is looking for the next good opportunity. Exploring your own mentality is vital because it would allow you not only to correct your mistakes stemming from poor judgement but also to adopt a better trading attitude altogether.