Wednesday, April 26, 2017

THE COMPLETE GUIDE FOR

FOREX TRADING STRATEGIES

Keeping a Trading Journal - Forex Trading Strategy

Why do you need a trading journal?

As we said above, a trading journal enables you to look back at your trading history and see what you did wrong and what you did right, highlighting the trading mistakes. On the journal, you can see if you have a tendency to enter or exit trades too early or too late, if you overtrade, if your position sizes are too big etc., so you can change the things you haven´t done right. This way you can improve your discipline - and we know that this is a great virtue to have; you shouldn´t let your emotions take you over.

You may ask why keep a journal when you have all your trades in the account history section of your platform. It is because a trading journal is much more than the pairs you trade and the prices you entered and exited. By the way, the journal section that the MT4 and the MT5 have recently added is not a journal of your trades; it is a journal of the platform actions.

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Improving your strategy

When I keep a trading journal I also register my strategy that I use for every trade. Personally I use several strategies because one strategy cannot work in every scenario or trade setup. I use news trading strategies when there are important news releases - such as the knee jerk reaction when the price makes the initial move based on the headline numbers or the fade strategy when the initial move fades and the price pulls back. There are times when the headline really moves the price so the knee jerk reaction strategy works well. One occasion was the ECB QE announcement in February 2015 which sent the Euro about 400 pips down in a few hours. But there are also times when the headline just doesn´t move the price and a currency declines after a small gain even though the data was great.

In September 2015 the USD kept declining even though most of the data posted positive numbers. In this occasion it´s better to use the fade strategy. After looking at the trading journal at the end of the first week in September to review my strategy, I saw that the price was ignoring the numbers. The USD declined 70-80 pips after making small gains when the US data was positive, so I decided to use the fading strategy and the results improved ending September with a 386 profit. Had I not looked at my trading journal and kept using the same knee jerk strategy I would be in red by the end of the month.   

Overtrading

Knowing whether you are overtrading is not as simple as it seems. As we said above, a trader can use different strategies which might be short-term trading or scalping. When you are scalping, 15 trades a day doesn´t necessary mean overtrading. You open and close the position for several pips within minutes, so a scalping strategy might even produce 30-40 signals a day. The problem is when you use normal strategies, keeping the positions open for hours and days and still have a high number of trades.

If your trading journal shows you that the trades are daily, midterm and long term and you still have 10-15 trades a day then you are definitely overtrading because you are keeping at least 8-10 positions open at the same time. When you are doing that you cannot concentrate and properly evaluate the market, because we know the market changes constantly and we need to analyze it often in order to manage the open positions. A trading journal shows how long your trades last, which strategy they´re based on and the number of daily trades, so if you are overtrading it will definitely be noted in the journal.

Account history functions

 Apart from helping you improve the other aspects of your trading besides the ones that the broker platform account history offers, you can obviously use it as a performance statistics. The account history registers all your trades, the pairs you have traded, the opening and closing time and the trade size. You can use this information to see your performance. You can check it to see which pairs you are more successful with and which ones you keep having losing trades.

Some pairs such as GBP/JPY and EUR/AUD are more volatile than others and some are less volatile like USD/JPY and CHF/USD. Some traders perform better when they trade the less volatile pairs while others have a higher winning rate in the more volatile ones. In the trading journal, you can see what kind of trader you are a volatility trader or the opposite. This way you can avoid trading the less volatile pairs if your journal shows that you perform better with the less volatile pairs. You can check which session or time of the day has the highest number of winning trades and stick to trading only on that session. Some traders I know only trade on the London session until 14:00 GMT when the US opens because they find it is easier to read the price action with only one market open.

Notes 

I often write down notes besides the trades on the journal when I think that I did something wrong or when I don´t stick to the trading plan and the strategy. For instance, I write a small note when I exit too early a trade and I didn’t wait for the price to reach the take profit or the stop loss target according to the strategy I used when I opened the trade. Sometimes it´s wise to exit early with a small profit when you think the market is reversing, or get out with a small loss if you think the market is headed towards your stop loss target. But you should also stick to your strategy and analysis.

In a trading journal you can register the amount of pips you win and lose and the pips that you would have won/lost if you stuck to the strategy. If you see that you would have made more pips at the end of the week/month with a strict strategy then you should avoid premature exits. If not, then maybe you should exit early more often or review your strategy. You can register the missed opportunities as well. Sometimes I hesitate too long and miss trades which would have resulted in some nice profit, as well as some other trades which would have ended up in a loss. You can check at the end of the week/month to see if you would have made a bigger profit had you taken these trades. If you would then you should not hesitate too long and jump the trigger.

As you can see, keeping a trading journal is pretty simple and it helps you improve a lot as a trader. All your failures and successes are there, so you can check them and do a regular appraisal of yourself. It´s better to look at your failures in the face and avoid them next time than to ignore and repeat them time after time. According to the trading journal you can improve or change your trading strategy, stop overtrading and avoid all sorts of mistakes. This way you can become a disciplined trader and that´s the only way to make it in the long run in this business.


 

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There are several rules which a forex trader must follow in order to be successful. We have covered most of these rules in our forex strategies section and these include: creating a trading plan, money management, how to read and trade the price action etc. But there is another very important rule that helps you on your way to evolve and become a professional trader. That is keeping your trading journal.

A trading journal is just like a diary; you record all trades and their specifics. You must make it your habit to keep one because it helps you identify your weaknesses, mistakes, and strengths. This way you can eliminate or at least minimize these. In the first year of trading (about a decade ago), I didn´t keep a journal of my trades even though I was new and trading was hard, obviously. I guess I didn´t want to acknowledge my weaknesses and mistakes and, therefore, kept making them. I only got rid of them when I started registering all my trades and their details. Since then, my trading has only got better. But how do you keep a trading journal and why exactly do you need it?

How to keep a trading journal

Keeping a trading journal is not complicated; you basically register each and every trade statistics. You can do this in an excel sheet. Place the date of the trade, the date in order to see which days you are most successful, the opening and closing time to see if you have a favourite session. Then you place the entry price, the take profit price, the stop loss price and the closing price to see if your targets are too narrow or too wide, the position size and the profit/loss. These are the basics but I add other sections such as strategy (the strategy the trade is based on) and notes (small notes about trade specifics). I also add the trade type, to see whether I am most successful with pending orders or market execution orders. Below, you have an example of a trading journal (empty and filled).  

Trading Journal Template

Date: ____________

Day:  ____________

Time the trade open: ____________ and closed: ____________

Currency pair: _____________

Entry price: _____________

Stop loss price: _____________

Take profit price: _____________

Closing price: _____________

Position Size: _____________

Strategy: _____________

Trade type: _____________

P/L: _____________

Notes: _____________

 

Trading Journal Example

Date: 26.08.2015

Day:  Monday

Time of the trade Open: 06:17 Close: 11:34

Currency pair: EUR/USD

Entry price: 1.1053

Stop loss price: 1.1083

Take profit price: 1.1013

Closing price: 1.1025

Position Size: 2 lots

Trade type: Pending

Strategy: Support/resistance

P/L: +28

Notes: Closed manually prematurely

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