Trade like a fund manager
I recently wrote about the importance of trading from the daily time frame, noting that it’s how the “big players” in the industry trade. The idea being that if you want to eventually become a powerhouse in the Forex market, following on the heels of traders such as George Soros or Bill Lipschutz is not a bad place to start.
In a similar way, we can look to these mega-successful traders when it comes to keeping a trading journal. After all, one of the best ways to find the path to success is to emulate those who have already traveled down that path.
How do I know for sure that these traders maintain their own records?
I don’t. But try to imagine either of these guys risking millions or even billions of dollars on a trade without keeping detailed records of that risk.
Looks pretty silly, doesn’t it?
So, while the idea of trading like a fund manager is not a direct benefit of keeping a journal, knowing that the big players in the industry do it should be enough to motivate you to develop and maintain a journal of your own.
What Exactly Should Your Trading Journal Include?
Beginning a new routine can be daunting, especially if it’s something you aren’t very familiar with. One of the first questions that probably comes to mind is…
What exactly should I be tracking?
First and foremost, know that tracking too much data is better than not tracking enough. However you also don’t want to make your trading journal so involved that maintaining it becomes a painful task.
Another key point when it comes to what you should be tracking is that it all depends on you and your trading style. Some traders feel the need to capture and annotate each chart in their journal before putting on a position, while others may do perfectly well without this step.
It all depends on what you feel most comfortable with.
To make things easy, I’m going to use the Forex trading journal that comes free with a membership to Daily Price Action. This way you can see exactly how I prefer to have things set up.
That said, do note that the data below is hypothetical and for example purposes only.
Watch List
Every good trading journal should include a watch list. These are the currency pairs you are keeping an eye so that when a favorable setup comes along, you have a plan and are ready to go.
A good example might be a currency pair that is consolidating within a wedge pattern.
Depending on the size of the pattern, you might have to wait for several days or even weeks for a breakout to materialize.
By keeping a watch list you can develop a rough plan of attack for when the trade setup confirms.
Here is how I have my watch list configured…
As you can see, it’s broken down by the date entered. After that each potential setup is separated by currency pair, along with key data points for each one.
Those data points include…
- Date
- Currency Pair
- Buy/Sell
- Setup Characteristics
- Potential RR
- Time Frame
This is the information I like to keep readily available on the dashboard. This makes it easy for me to see which currency pairs are of interest at any given time as well as the price action required to confirm the setup.
If I click “view” for any one of these I get a more detailed look at the potential setup.
Let’s take a look at EURUSD…
Notice that the information on the left is similar to what we saw before, but now I get to see an annotated chart to remind me of exactly what it is I need to watch for.
One thing before we move on. Take note of how simple I keep this process. The window above consists of just 7 data points and 2 annotated charts. To include the same information in your own trading journal would take no more than 10 minutes of your time.
Now that we know what we are watching, let’s move on to the actual trades.
Trading Summary
Similar to the watch list, the trading summary lists several key data points on the dashboard. The main exception here is the characteristics field, which is not required on the dashboard as I am already in the position.
Here is how I have my trading summary configured…
Notice how the summary is separated by open trades and closed trades. This allows me to quickly view my current exposure as well as past trades taken.
The data points I focus on here are as follows…
- Date
- Currency Pair
- Buy/Sell
- Result
- Profit/Loss
- Status
Just like a setup on the watch list, I can find more information on a particular trade by drilling down to the details page.
Here we can see a short setup that occurred on GBPJPY.
From this window I can see the fields that we saw on the summary window as well as the money risked and planned risk to reward ratio.
Now here is the great part about this particular Forex trading journal. Once the trade is closed, I can change the status from open to closed and enter more detailed information about the result of the trade.
Here are the additional data points that I track for trades that are closed…
As you can see from the image above, the additional data points for a closed trade include…
- Outcome
- Pips +/-
- Exit Price
- Actual Risk to Reward
- Exit Date
So there we have it. The watch list is for tracking the potential setups that may or may not materialize while the trade summary tracks both open and closed positions.
The most important takeaway from all of this is how simple it can be to maintain detailed records. You don’t want your journal to become overburdened with data to the point that maintaining it becomes a headache.
It should be just enough information to capture the essence of the trade, but not so much that it distracts you from what’s important.
Make Do With Less
I realize that not everyone will be able to join Daily Price Action in order to get access to the trading journal you just saw, and that’s okay.
While the DPA journal is more robust and effective than most others I have seen, it isn’t absolutely necessary. Using something like Microsoft Excel to create your own journal is a great starting point. In fact it’s how I started tracking my own trades before I developed the one you just saw.
Don’t have Microsoft Excel?
No problem. A simple notepad will get the job done. You can even print your charts out and annotate them by hand. It all comes down to finding what works best for you.
Regardless of how you decide to do it, just know that something is better than nothing.
Take the Challenge
They say it takes 21 days for an activity to become a habit. So in the spirit of making good habits, why not spend the next 21 days tracking your own trades using the data points we just discussed?
I can’t guarantee many things in the world of Forex, but one thing I can guarantee is that keeping detailed records of your trades can only improve your trading performance.
So why not start right now?
Final Words
Regardless of how you choose to enter and maintain your trading records, keeping a trading journal is a critical component if you wish to succeed as a Forex trader.
The most important thing to keep in mind when developing your own system of record keeping is to keep it simple. Otherwise it will quickly become a chore rather than a productive exercise.
Always remember that a journal will do more than just improve your trading. It will allow you to have fun again by making your trading more effortless, a goal that should be at the top of every Forex trader’s list.
Your Turn
Do you currently maintain a Forex trading journal? If not, did this post help you better understand why it’s important and how to
structure one for yourself?
Let me know your thoughts in the comments section below.