What is a trade journal, and how important is it?

A trading journal is a record of your trading activity. Keeping track of your trading activity is the single most important tool for making a dramatic improvement to your trading performance. It's why almost all professional traders keep one, and why many amateur traders fail early on in their trading career.

The truth is that what you can't track, you can't improve, and what you don't track, you won't improve. Think of sport, for example. Footballers, golfers, baseball players: all of them watch recordings of themselves to analyse their weak points and improve their future results. Even poker players take notes during tournaments.

Fail to journal and mistakes will be repeated. Specific errors go unnoticed and are repeated until accounts are eked away or, worse, blown to pieces by a single emotional act. A journal is an important part of any process of improvement, and those notes and observations on multiple features then need to be reflected on and reviewed.

Notes, stats and observations are not only about identifying weaknesses. They can also identify an edge that can be refined and improved: spotting a market phenomenon or a repeated behaviour, for example during OPEX, month end, bond auctions, Fed speakers or whatever it may be.

Trading journal software, or even a simple Excel spreadsheet, is essential, as it identifies positive and negative patterns and helps build strong habits for self-improvement. Think about this: you generate lots of data while you trade. Why not capitalise on that and extract some valuable patterns for analysis?

These tools also help you keep track of your market moves, measure your progress and benchmark your trading performance. Journals benefit beginners and professionals alike. They help beginners build habits and achieve more success. For professionals, they fine-tune strategies and make it easier to deep-dive into the detail and analyse it.

StartingThe hardest thing with trading journals is deciding to start, and then building the habit and keeping it consistent. It will take some time, trial and error, and reflection. Process, edge, markets and errors are always evolving, and your journal entries will evolve too.

The sooner you start journaling and reviewing consistently, the quicker you will reach your end goal of becoming a better trader. One example of how journaling can improve the bottom line is identifying FOMO trading after a loss and putting a process in place to stop that behaviour, such as walking away after a loss. Or, on a more positive note, an observation that bonds tend to sell off on auction days as extra supply needs to be absorbed, leading to a higher-conviction trade in that product.

What to writeA trading journal includes the classification of the day type, news and other market-moving events, the import and analysis of each buy or sell order, trade size, executed price, trading strategies, commissions and notes. The auto-generated trading metrics in journal software help you find your trading edge by analysing your trading performance. Other things to include are tracking your sleep and your mindset and feelings at the time of day.

Reviewing itThe journal software calculates helpful metrics to help you analyse your trades. The intention is to find the most profitable strategies and separate them from the others. For example, you may identify strategies that feel profitable but where the imported trade history tells another story.

The trading journal is free of emotion and helps you analyse your trading activity. Keep written notes close by, in the same package or in a paper journal. It doesn't matter how, as long as you do it.

Are journals effective?Yes. Trade journals are effective, and they are as good as the trading data imported. The more trades you import for analysis, the better the result. More importantly, you need to take the time to tag and actually journal your trades, and then review them to improve.

A text document, Evernote, an Excel worksheet, a free or paid third-party service: you have a wide range of options. To narrow down your choices, let's go through some of the basic features they may have.

• Automated trade history import: a convenient feature that saves plenty of time and effort. The most popular third-party solutions integrate directly with brokers and trading platforms, so your trade history can be uploaded with just a few clicks.
• Report and analysis tools: these are the most important features. Automated analysis of your data helps you draw conclusions and extract essential information about your style, mistakes, market moves and more. That way you will be better prepared the next time you trade, and you can significantly optimise your overall performance.
• Advanced features: looking at graphs and previous trades is one thing. Access to advanced features for back-testing, trade management evaluation, classifiers, trade optimisation and more can take your game to another level.