What is the most overlooked mistake among Forex traders?
It isn’t emotional decision-making, overtrading or excessive leverage. Although all of these things can drastically improve your trading if managed properly.
But I would guess that most traders know about these topics, so they aren’t necessarily “overlooked” mistakes. Whether or not they choose to adhere to best practices is of course another story.
Not keeping detailed records of trades is arguably the biggest pitfall among traders. It may seem like a trivial exercise, to keep track of what you trade and how you trade it, but I assure you that the benefits of the exercise go far beyond simply remembering what you traded last week.
Do you keep good records of your trades?
If so, I bet you are in the 10% of traders who do, so cheers to that. For the remaining 90%, this article was written for you.
By the end of this article you will know why maintaining a trading journal is a must if you truly want to become a successful Forex trader. I will show you the exact journal that we use in our community and also share with you the 13 data points we track for each trade.
I will be using the online Forex trading journal that I developed as an example throughout the article. This journal is available for free to those who join our private community of price action traders.
Let’s start journaling!
What's in It for Me?
One reason I believe that starting and maintaining a proper trading journal is often overlooked is because it isn’t considered to be fun. After all, you trade because you love to trade, not because you enjoy keeping records.
But here’s the catch, in order to really enjoy trading, you have to keep good records, and it all starts with a proper Forex trading journal.
Don’t believe me?
How about this question – who has more fun, the struggling trader or the one who turns a consistent profit?
Of course the trader who is consistently profitable is going to have more fun, and I can guarantee that he/she keeps a detailed journal of every single trade taken.
With this in mind, we can make the argument that a proper journal will not only improve your trading performance, it will allow you to enjoy trading more than you already do; and who doesn’t want that?
This idea alone should make the tedious and seemingly boring task of record keeping a bit less so.
What You Measure Grows
So now you know that a trading journal will not only improve your trading performance, it will allow you to enjoy Forex trading to the fullest.
But how does a simple trading journal accomplish all of this?
It doesn’t, at least not by itself. A journal left sitting to collect dust certainly won’t help you. You have to set it up and maintain it in a way that compliments your trading and thus gives you an advantage.
We will get into the details of how to set up your journal shortly, but for now I want to focus on the many ways that something as simple as tracking the trades you take can vastly improve your trading.
Discipline
We all know that discipline is a huge factor when it comes to trading. It’s discipline that keeps you within the limits of your trading plan, just as it’s discipline that allows you to let your winners run and cut your losers short.
The simple act of maintaining a trading journal will help reinforce discipline in your trading. That’s because it takes discipline to enter the details of a trade before putting on a position. It also takes discipline to record that trade once closed, especially if it turns out to be a loss.
Patience
Patience is another trait of every good trader. As I always say, when it comes to trading Forex, less is more. The fewer trade setups you take each month, the better off your trading performance is likely to be at the end of the month.
How does a Forex journal help develop patience, you ask?
By forcing you to analyze every detail of a trade setup before you can pull the trigger.
The development of the internet combined with the free trading platforms available at most brokerages have made it extremely easy to place a trade, perhaps too easy.
But when you are forced to enter the details of that trade beforehand, including an annotated screenshot of the setup, it forces you to slow down and really think about what you are doing.
You can no longer act spontaneously based solely on emotion, which is never a good idea as a trader.
Accountability
One of my biggest fears with starting Daily Price Action was that it would offer some traders a scapegoat if a commentary of mine didn’t play out in our favor. In other words, those who enter trades simply because I post about them would point the finger at me if they lost money rather than taking responsibility for their actions.
I have yet to receive an email to this affect, but that doesn’t mean that these traders don’t exist. But I would be willing to bet that those who think this way are not maintaining their own trading journal.
What makes me think that?
Because if they had a journal they would have been forced to enter key data points prior to placing any capital at risk. Once entered, it becomes very difficult to place blame elsewhere if the market decides not to play along.
So even if you follow a trader such as myself, it’s imperative that you maintain your own journal. It will help solidify the trade idea so that you can match it up against your own criteria before placing any money at risk.
Focus
The sheer number of financial instruments at our disposal as traders can be daunting.
Even the number of currency pairs can quickly rise above 50 when you start considering some of the exotics.
How does one keep all of this information organized?
You guessed it, a trading journal.
Not only should you be entering the details of trades you take, both pre-entry and post-entry, you should also be tracking a watch list of potential setups. This will help you stay focused during the week so that you don’t stray from your plan of attack.
At any given time I have two to five price structures that I’m keeping an eye on, just waiting for the right time to strike. The best way for me to keep track of the details for each potential setup is to enter that information in my journal.