To maintain a proper journal is always an important task when it comes to forex trading. The main purpose of doing this endeavor is to determine, monitor and keep the focus on your foreign currencies and their performance in the market, and to improve your overall portfolio of foreign exchange trading. A forex trader with discipline and organized knowledge is a moneymaking trader and having a forex trading journal is the initial phase of achieving that.
Keeping a forex trading journal might sound like an easy job, but to actually start one can be a bit confusing and difficult, especially if you are just starting to make your way into the forex market. As a matter of fact, several forex traders do not maintain a forex trading journal as they simply give up the task and rely heavily on the trading logs provided by their forex brokers. The trading logs provided by brokers contains your transaction history, but they are only slightly useful as they do not tell you why you bought or sold a currency.
A forex trading journal is more than just entering transaction records including beginning, finishing, and execution of the trade. It is also about improving your trading techniques and, understanding and transforming your own mindset. The forex trade journal is more concerned with the trader’s emotional mindset before and after the trade takes place.
Usually, a forex trading journal is maintained by many flourishing traders who want to maintain an objective outlook towards their foreign exchange trading circumstances so that they won’t get carried away in upward trends nor they will lose their money with wrong moves during downward trends.
If you want to do forex trading in Sri Lanka with successful results in the long term, keeping a forex trading journal will provide with a great insight that you will not get from the logs provided by your broker or from any other source.
Forex trading journal is prepared while keeping three main objectives in mind:
- Preparing and implementing an effective trading plan.
- Maintaining an advantageous trading system within the trading plan.
- Appraising and improving your trading strategies and performance.
Why Should a Trader Use a Forex Journal ?
As a trader, you might still be wondering why you need to maintain a separate forex trading journal when your broker is already providing you with real-time records of your trading transactions. The answer is forex journal offers a lot more than just the recording of your forex transactions. Given below are a few reasons as to why you need to keep your own forex trading journal:
1. For record purpose
Of course, the basic idea behind maintaining a forex trading journal is to record transactions for the future reference. Over a time period, the journal will become a place of your trading historical data, which you can use for decision making in the future. You will have a summarized record of all your trades and you will be able to keep track of each trade and check on the effects of every trade on your overall trading position in the forex market. Based on your analytical skills, you can gather lots of information from your collected and recorded data and use them for more beneficial market actions.
2. Helps in Planning and Preparation
While the main objective of creating a forex trading journal is recording data, it is also a great planning tool. It provides you with in-depth information about your trading history using which you can make your plans for future trading. You can set parameters for each trade deciding on when you want to buy or sell a currency, your price range, and how much risk you are willing to take without actually harming your profitability and trading position in the market. Basically, a forex trading journal can be your personal thoughts book where you not only record transactions, you also record your sentiments about each trade and where you want to take it from there. You can set goals and work towards attaining them.
3. Analyzing your trading style
One of the most important reasons for why you should keep a forex trading journal is that with time you can identify your trading methodology and work on improvements where you think necessary. You will be able to track your trading performance through forex trading journal and see how well your trading style is performing in the changing market circumstances.
4. Learn to create healthy investment habits
Perhaps one of the best parts of maintaining your own forex trading journal is that you can see where you are going wrong with your investment habits, and thus you can change your damaging habits to something more creative, constructive and profitable actions. With more and more improvements in your investment style that can also give you more profits and strengthen your portfolio, your confidence will increase in your ability to make sound investments in foreign exchange market and make the valuable decisions during volatile market conditions.
Main Constituents Of Forex Trading Journals
When it comes to preparing forex trading journal, you can prepare it in the way, which is most convenient for you. The best and easiest way to approach it is that
Whenever you complete a trade, note it down in an excel sheet or a notebook along with the reasons for why you entered into that trade. That way you will be able to analyze your past trading decisions to get a better outcome in the future.
Given below are some of the basic elements that you must keep in your forex trading journal pertaining to each of your trade:
- Time – Here, you will record the time when the trade was initiated. You can also note the market conditions and why did you enter into that trade.
- Exchange rate– Here, you will record at what exchange rate the transaction was implemented. Along with the exchange rate, you can also add the rate at which you would like to go out of the trade, and how much risk you are prepared to take and what could be your stop order level.
- Size– Here, you will record the size of the lot you bought or sold during the trade. This piece of information is very important as it will help you in managing your money in the correct way.
- Outcome - Here, you will record the final outcome of your trade. You can note down whether you managed to achieve the results you were looking for and if not to what extent you managed to get close to your desired results, or you had losses.
If you want to know more about how to trade forex in Sri Lanka, analysis of forex trading in Sri Lanka, how forex brokers operate, and many other things you can refer to, ‘ Introduction to Forex Trading ' and other related articles.