The ability to learn from one’s mistakes is a valued asset in all parts of life. But it’s especially true when it comes to money. Investing is all about money and having a trading diary, regardless if you’re a day trader, or focused on the long term, is a must.
Having a record of what you’ve done when opening and closing trades allows you to go around one of our main human flaws – forgetting and repeating mistakes.
But what are the components of a trading diary? Should it be as detailed as possible or quick to fill in? Here’s our recommended list of items that we think are the optimal combination of easy to keep and detailed enough.
1. Date and time – these are the basics but depending on your trading you can actually write only the date (if you’re investing) and add the time of day if you’re day trading.
2. Entry and exit price – another obligatory part as you’ll need them to keep track of the difference you win or lose. You can use it to calculate percentages for the moves that happen. And one thing for advanced traders – add another column next to this one for partially exited trades, which might happen quite often.
3. Asset – Pretty straightforward, write in what you’re trading, but there is something more to be gained from this. If you can sort them, you can analyse where you’re winning and where you’re losing. You might be better at trading stocks than Forex. Or you could get right more trades with JPY than EUR. Limiting your losses and expanding your wins is an important part of managing your trading.
4. Buy or sell – Again, this is a simple part to include in your trading diary but it has an additional purpose. Many traders seem to have a preference for either buying or selling i.e. they profit more from bullish positions rather than bearish ones, or the other way around. Having this data can help you determine where to focus.
5. Type of order – Many Forex traders use the simple buy and sell options when trading, to a certain extent that’s also true for gold and oil. But stock traders are quite frequently seen using pending orders for both opening and closing positions. Having a record of this is important as it could show the difference between making manual vs automated trades.
6. Execution price for automated orders – an appendage to the Type of Order column, this one helps with keeping track of where the trigger was for an automated trade. It can also be a database for where new positions were opened and when.
7. Quantity – here you keep track of how much money you actually invested in a position. We’ve already stressed the importance of money management in trading. Keeping a record of this variable helps with that.
8. Approach – Make a quick note of the type of analysis that was used to make a decision. A simple review of the number of times they were helpful or harmful will show you which ones can be trusted.
9. Notes – just add your thoughts on why you’re opening or closing a trade. When you read it weeks or months later you’ll know if you were right or not and this help adjust your overall approach to the markets.
Programs like Excel, either for your desktop or online, can be very useful for keeping a trading diary. Although they seem strict and cumbersome, they are quite versatile and can be used to connect different types of data.
This type of journal has quite a few positives and almost no negatives (apart from taking some time to maintain). But having it can be invaluable over time.