You may be wondering why you need a separate trading diary since almost every broker keeps a real-time record of your deals. Indeed, one may claim that the broker’s record likewise maintains track of available purchasing power, margin utilization, and profit and loss for each deal executed. Still, there are advantages to maintaining a separate trading notebook, as explained below.
The diary will give a historical viewpoint throughout time. It will not only summarize all of your deals, but it will also show you the status of your trading account at a glance. In other words, it becomes your own performance database, allowing you to look back in time and assess how often you traded, how profitable each transaction was, which currency pairings performed better for you, and even what time periods yielded the highest profit percentages.
A good trade diary should not only record your actual trade data, but it should also include information about your trade plans for each deal. This tool enables you to think about each trade before you join it by specifying where you want to enter, how much risk you are willing to tolerate on the transaction, where your profit objective will be placed, and how you will manage the trade as it progresses. In other words, the notebook allows you to record your ideas in actual statistics, allowing you to turn wishful thinking into practical reality. It serves as the foundation for a process for preparing your deal and then trading it.
Another significant benefit of keeping a trading record is that it will help to validate your system over time. You’ll be able to monitor how well your system performs under shifting market situations. It will provide answers to queries such as, “How did my system perform in a trending market, a range-bound market, various time periods, and the influence of your trading actions such as putting stop-loss orders that were too tight or too loose?” The trading record must be detailed in order to keep all of the facts for the rationale behind a certain approach.
Mind Pattern Modification
One of the most beneficial aspects of your blog will be the actual assistance it gives in driving you to convert your harmful habits to productive ones. You will get more confidence as you understand how to trade your strategy. Your good transactions will not seem as random, and your losses will be “prepared for,” and so will not ding your psyche in a manner that makes you believe you are a loser. Your degree of confidence is a critical mental and emotional aspect in trading. Confidence is the cure to the fear and greed loop that many traders get into. Most persons have a natural, inbuilt reaction to fear and greed. If you’re winning, you want to win more; if you’re losing, you’re scared and even panicked as your balance approaches zero.
Keeping a journal that collects your statistics helps you set up a trading plan by defining the parameters of action required, serves as a rearview mirror so you can measure how well you executed each trade, and most importantly, provides you with feedback to help you develop and evolve your trading skills. As you grow, you will discover that a solid trading notebook may be your closest friend and coach. (Volatility peaks are determined by market hours in Tokyo, London, and New York.) The Forex Three-Session System explains how.)
The Two-Part Journal
It is advised that a trade magazine be established that achieves two major concepts:
- A chronological columnar list of deals that you may sum and aggregate to keep track of all your efforts. This is best performed by scribbling the necessary data in the columns. Of course, you can maintain records in an Excel spreadsheet, which will handle the arithmetic for you and eliminate basic calculation mistakes. This is dependent on your spreadsheet modeling skills.
- A copy of the exact chart you used to decide the trade should be clearly put up on the chart, showing your entry level, stop-loss level, and possible profit level. Make a note of the reasons you made the deal at the bottom.
Finally, you should keep a logbook for each trading approach or system that you use. Do not combine systems since the outcomes of your trades will be influenced by too many factors and will be inconclusive. As a result, if you use more than one trading system or approach, maintain a logbook for each one.
Every transaction you record should be based on a single system, which will allow you to compute the expectation or dependability of your system after around 20 trades.
Here is the expectancy formula:
Expectancy = [ 1 + W L ] P 1 where W = AverageWinningTrade and L = AverageLosingTrade P = PercentageWinRatio beginaligned &textExpectancy = left [1 + fracWL right] times P – 1 &textbfwhere: &W = textAverage Winning Trade &L = textAverage Losing Trade &P = textPercentage Win Ratio endaligned
For example, if you made ten transactions, six of which were winners and four of which were losers, your percentage win ratio would be 6/10, or 60%. If you made $2,400 on six transactions, your average gain would be $2,400/6 = $400. If your losses totaled $1,200, your average loss would be $300 divided by four. When you plug these results into the formula, you get:
P=[1+400300] ×.6−1=. 4 P = left [1 + frac 400 300 right] multiplied by 4. 6 – 1 = .4 P=[1+] ×.6−1=.4
or 40%. A positive 40% expectation suggests that your system will repay you 40 cents on the dollar in the long run.
The Bottom Line
You can behave confidently once you know what your system expects. Confidence is essential for successful implementation. If you lack confidence, you will be unable to execute your trades as planned, and you will either second-guess yourself or get immobilized by over-analysis of market data. As your initial trading habit, keep a trading notebook. It will become the key to all of your future excellent deals.
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