What is a trading journal, and how do traders use them?
This very simple habit is one of the most important things you can do to improve your performance and make big profits.
Author - TradeZella Team
If you’re not using a trading journal to keep track of your trades, you’re missing a huge trick. It’s the secret weapon that can help make you successful.
This one little habit can improve your decision making and performance, helping you to reach your goals quicker – and raising your chances of making big profits.
Sounds good, right?
Whether you’ve been trading for years already or are just starting out, here’s why you should set up a trading journal ASAP – and some ways professionals use journals to take trades to the next level.
First things first: what is a trading journal?
A trading journal is a record of every trade you make, along with the decisions that led to them.
We get that updating a journal isn’t one of the sexier parts of trading. It can sometimes feel a bit boring and time-consuming.
That’s probably why a lot of people don’t bother to do it – just one of the common mistakes beginner traders make.
Keeping a trading journal is way more than a box-ticking exercise or vanity project.
With the right trading mindset, along with a bit of patience and discipline, you’ll soon find yourself with a super important tool for evaluating your progress and fine-tuning your strategy.
So, how do traders use journals to make big profits?
Use #1: Spotting helpful (and unhelpful) patterns
If the same issue keeps cropping up in your trades, you’ll be able to identify it quicker if you’re logging it.
For example, Mondays were an issue for me when I first started out.
After a long weekend of relaxing, I’d come back with a vengeance. I’d immediately put on too much size and take on bigger than anticipated positions.
As a result, Mondays were always unprofitable. But, because I was logging my activity in a trading journal, I quickly saw the issue and took measures to catch myself.
The simple act of journaling about what happened means taking a moment to reflect on it – something you might not do if you quickly move on to the next trade.
By consistently journaling, you’ll soon see what behaviors you need to eliminate in order to be more successful. Sometimes mistakes are minor, and easy to overlook if you’re not actively reflecting on them.
Journaling isn’t just about catching mistakes, either. It’s also about noticing positive behaviors and building them into your strategy.
Flipping back through your successful trades, you can sometimes identify patterns that led to increased profit.
Writing everything down means that even the most minor action won’t go overlooked.
Use #2: Mastering emotions
Trading can be surprisingly emotional, for a numbers game. And, when our emotions run high, logic takes a back seat.
When you use a trading journal, everything is there in front of you in black and white.
Taking time to write down exactly what is happening lets you put emotions to the side. You can step back and make good decisions based on facts, not feelings.
Speaking of feelings, write those down too.
If you felt panicked and that led to you closing a position too early, you can use this experience to better manage your emotions in the future.
Once you start to understand the emotions behind your trade, you realize why you sold or why you bought. You start to figure out your trigger points.
So, for example, when I look back through my trading journal, I see moments where I sold but then the stock went a lot higher.
I can see that I start selling the moment I see red, or the moment I see green. These patterns kick in because of emotional triggers – and not because I’m sticking to my strategy.
Use #3: Improving discipline
Success as a trader comes from sticking to your plan: no matter what.
As I mentioned earlier, I noticed that Mondays were often red days for me. By journaling I was able to ask myself why that was, and improve my discipline.
I stopped putting on more size than I could handle, and taking on bigger than anticipated positions. Instead, I was consistent. I did what I said I’d do, and followed my game plan.
Trading can be super exciting – there’s nothing quite like the rush of seeing that line moving upwards. It can also be super stressful if a position isn’t going the way you thought it would.
By using a journal, you hold yourself accountable for every decision you make. You’re recording everything you do. This makes you less likely to deviate from the plan.
Keeping a journal helps you to stay focused and motivated, no matter what the market is doing.
While your journal is for yourself, and no-one else, there’s still a sense of achievement that comes from saying you stuck to the plan – and a sense of shame in saying you deviated.
Use #4: Help you find your edge
One of the best things about a trading journal is that it helps you to figure out which strategies work, and which don’t work.
This is where journaling software like TradeZella is especially useful. Our Playbook feature makes it super easy to track which strategies work and which don’t, and which are profitable and not.
I can see how my strategies are performing – like in this ‘low of the day’ strategy. It’s in the red, and I’m not making money in it. If I dig deeper I can see I had three losing trades and one winning trade. It’s a 25% win rate, which isn’t great.
By looking at this data I can decide which strategies to cut out, and which ones to keep using.
Use #5: You can dive into key metrics
Using a trading journal makes it easy to keep track of important metrics – like win percentage and average win to loss ratio.
You can calculate this yourself using a spreadsheet, or good old pen and paper. The best way is with our journaling software, as these stats are tracked without really putting in much effort.
Once you have these metrics, you can dig deeper and see more. Like how you tend to perform on a profitable day, and how that compares to days where you lose.
It’s another thing to reflect on, and can help you to become a better trader as you gain a deeper understanding of your own performance.
Use #6: You gain a better understanding of position sizing
One of the most important parts of trading is knowing what size of position you feel most comfortable with – this can hugely affect your performance. Using a journal helps you find your comfort zone.
So, for example, I know traders who perform like absolute rock stars whenever they risk $1k on a trade. But, as soon as that risk rises to $3k, their performance drops off a cliff.
Why? It’s because they’re not comfortable with that level of risk. They’re putting up too much money, and don’t feel comfortable with it.
A trading journal can help you to look back and see at what level you start to lose your mojo.
What does a trading journal look like?
Trading journals range from basic pen and paper to all-singing software like TradeZella, with lots of built-in features to help you to improve.
Some traders use spreadsheets, which are more interactive than a notepad but don’t have the same functionality as journaling software.
At its most basic, a trading journal will include:
The basics. Date and time, asset type, whether you were buying or selling, and the entry / exit price.
Profit, loss and percentage return.
Probably the most important metric to track. Include your stop loss and take profit levels, and include a note about techniques you used to manage risk.
This is where it starts to get analytical – this section is all about thoughts and observations. Some prompts: what was your reason for choosing this asset? Did you stick to your plan? What did you learn?
How did you feel during the trade? Confident? Anxious? Did you feel the urge to deviate? Write it all down.
This free space is for any other observations that don’t fit neatly into the other boxes.
You can add extra sections if you need to – for example how long you spent on a trade, or a space for market observations.
It’s your journal, so you can do what you like.
The main thing is that you record every trade the same way. That consistency is what’s going to help you to analyze and improve your performance.
Learn more about creating a trading journal template and using it effectively.
Use trading software for in-depth features
Of course, this is the absolute basics.
Advanced trading journals like ours show how your trade performed while you were in it. You can see your running P&L, and realize “at one point in the trade I was down $12k”.
The minute by minute mover shows when you were up, and when you were down. It gives you the chance to reflect on what happened.
Zella has lots of cool hidden features, like Zella Scale. This shows you more than just the bottom line.
For example on a trade where I made $1.5k – it’s easy to look at that and think I did well, but with Zella Scale I can see that at one point I was down $2.9k.
It can be super humbling, but it’s also really important as a trader to understand your weak points as well as strengths.
How do I use a trading journal?
The whole point of a trading journal is to monitor your trades, and also to evaluate your ability to stick to the plan. To journal successfully, you need to:
Be brutally honest
You’re not going to be able to spot patterns or understand where you’re going wrong if you sugarcoat the truth.
It might be embarrassing to admit you got distracted by video games, but if this is a recurring pattern it’s something you need to work on.
Start each entry before the trade, and end it when it closes
This way you can keep a log of your emotions throughout the trade.
Observe the market, too
It’s not all about you – if you start to notice patterns, write them down. They could help you to identify big opportunities further down the line.
Take pre-market notes
Before the market opens, start taking notes on what is going on.
For example, if we had FOMC yesterday, this morning I’d be looking for any weakness in open looking to sell off.
Coming up with a thorough analysis and breakdown before getting started means you can figure out whether your trades during the day connect with it.
Having a pre-market game plan helps you to stick to your strategy and look at the bigger picture.
Recap your day
Once the market closes, reflect on mistakes you need to learn on. For example maybe you did great on execution, but terrible on position sizing.
With TradeZella you can even replay your trades to gain deeper insights into what went well and what didn't.
Looking at these little data points (and working on them) will help lead you to success.
If you’re not logging every trade, and logging it in the same way, then you’re going to miss out on a lot of trade journal benefits.
Use trading journal software to set yourself up for success
Nobody likes admin, but keeping a trading journal is a surefire way to become a better trader.
At first it might seem tedious and time-consuming, but after a few weeks you’ll find yourself with a valuable tool for improving your strategy.
Register for TradeZella and let our innovative trading journal technology help you reach the next stage of your trading journey.