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What Does a Trading Journal Do?

Contributor Image
Written By
Dan Buckley
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
» Dan Buckley Profile Page
Updated
Oct 4, 2024

A trading journal is used by traders to record and analyze their trades.

It can be a physical notebook, a word document, a spreadsheet, or a specialized software application.

 

Key Takeaways – What Does a Trading Journal Do?

  • Tracks Performance – A trading journal records trade details like trade criteria, entry/exit points, profit/loss, and key metrics. Helps monitor progress and evaluate strategies.
  • Refines Strategy – Analyzing your trades reveals patterns and mistakes. Allows you to adjust and improve your trading approach.
  • Boosts Discipline – Journaling holds you accountable, promotes emotional control, and reduces impulsive, emotion-driven trades.

 

Here’s what it does:

1. Tracks Performance

Records trade details

This includes the date, time, asset traded, entry and exit prices, position size, and profit/loss.

Monitors progress

Tracking your trades allows you to see how your strategy is performing over time and identify areas for improvement.

Measures key metrics

You can calculate important performance indicators like win rate, average profit/loss, risk/reward ratio, and Sharpe ratio to evaluate your overall trading success.

 

2. Improves Decision-Making

Write down your criteria

Whenever we make a decision there’s something going on in our brains that causes us to do what we do.

What are the criteria?

The quality of your decisions ultimately determines your success in trading, so it helps to write down exactly how you’re making those decisions.

This also brings a host of other benefits, such as being able to stress-test what you think to make sure it’s actually good.

Identifies patterns

Reviewing your trading history enables you to spot recurring patterns in your behavior, both good and bad.

This helps you understand your strengths and weaknesses as a trader.

Analyzes mistakes

A journal allows you to dissect losing trades to understand why they went wrong.

Were your entry/exit points poorly chosen?

Did you ignore your risk management rules?

Refines strategy

You can identify what’s working and what’s not in your trading strategy by analyzing your trades.

This allows you to make adjustments and better optimize your approach.

 

3. Improves Discipline and Emotional Control

Promotes accountability

Keeping a journal forces you to be accountable for your trading decisions.

This can help you avoid impulsive trades and stick to your plan.

Manages emotions

Trading can be emotional.

A journal provides a space to record your thoughts and feelings during and after trades, helping you understand how emotions impact your decisions.

Reduces biases

Objectively reviewing your trades enables you to identify and address cognitive biases that may be affecting your trading.

 

4. Facilitates Continuous Learning

Captures observations

You can use your journal to record observations about the market, specific assets, or your own trading psychology.

Tracks learning progress

Your journal helps you track your progress as you learn new techniques or adapt your strategy and see the impact of those changes on your trading.

 

Example Trading Journal Entries

Let’s give some hypothetical examples.

We’ll structure this by date and time, asset, trade type, entry/exit price, position size, profit/loss, strategy, rationale, emotions, and lessons learned.

Example 1: Day Trading Apple Stock

  • Date & Time: October 3rd, 2024, 10:30 AM EST
  • Asset: AAPL 
  • Trade Type: Long (buy)
  • Entry Price: $175.50
  • Exit Price: $176.25
  • Position Size: 100 shares
  • Profit/Loss: +$75 (excluding commissions)
  • Strategy: Breakout above resistance level on 5-minute chart
  • Rationale: AAPL was consolidating near a key resistance level. Increased volume and a bullish candlestick pattern suggested a potential breakout.
  • Emotions: Felt confident in the setup, but also a bit anxious as the price approached the entry point.
  • Lessons Learned: Need to be more patient with letting the breakout confirm before entering. Could have potentially captured more profit.

Example 2: Missed Opportunity

  • Date & Time: October 2nd, 2024, 1:00 PM EST
  • Asset: GOOG 
  • Trade Type: None (missed opportunity)
  • Strategy: Bullish flag pattern on the 1-hour chart.
  • Rationale: GOOG was showing strong momentum and the pullback to the flag pattern presented a good entry opportunity.
  • Why Missed: Got distracted by other tasks and failed to monitor the chart.
  • Emotions: Frustrated for missing a clear setup.
  • Lessons Learned: Need to stay focused during trading hours and avoid distractions. Possibly set price alerts to avoid missing future opportunities.

 

Conclusion

A trading journal can be helpful for self-improvement and achieving consistency in trading.

It helps you move from impulsive, emotion-driven decisions to a more disciplined and analytical approach.