Seasoned forex traders are likely to attribute part of their success to keeping a complete trading journal. This should be able to help you keep track of your progress, as well as the trade setups that usually work for you. Aside from that, it should also contain risk management decisions and psychological factors that affected your trade. Below are the components of a good trading journal:
The first major component is the actual trade analysis. This can be in the form of technical signals or fundamental framework, depending on which ones you typically include in coming up with a trade idea. It would be helpful to look at all possible angles, which might also include risk sentiment, in your analysis. This will allow you to explain why you believe a currency will rally or sell off versus the other.
Next is the part on risk management. When you’ve finished identifying why a currency pair will move a certain way, you should also be open to idea that your analysis will be proven wrong. In this case, you should have clear risk management plans in place in order to limit potential losses. This part should explain if you will be cutting losses early or at which point your trade idea is invalidated. You should also mention how much you are risking on the trade as a percentage of your account.
The third part is all about the time frame. How long do you plan to hold on to your trade? This can depend on the type of trading style you have. If you’re a day trader, you should specify until what trading session you plan to keep your trade open or if you will have any reason to close early. If you’re a swing trader, you can determine how many days or weeks you plan to keep your trade open or if there are any market changes that could lead you to exit before that time frame.
The last major component contains trade psychology updates. You don’t have to list down all your emotions at once since this could vary while your trade is playing out. Update your journal if you are feeling confident or uneasy about price action or if you are unhappy with the trade decisions you made. This is helpful in managing emotions in your trading endeavor.