Everybody that ever enters the market will lose money at one point or another. But not everybody will know what to do in order to overcome their loss. Every bad trade is an important trading lesson. You MUST learn from your mistakes to become a better forex trader.
How? It’s simple. Track all your trades in a forex trading journal.
If you only follow one suggestion from this website, this should be it. By following this simple, easy to follow tip, you can easily improve your trading by 100%. Here's how you do it:
Step 1 - Write down WHY you are making at trade BEFORE the trade.
Before every trade, jot down the reasons why you are making the trade. It doesn’t have be long; heck, it doesn’t even have to be in compete sentences. Just write a few key reasons why you are making this trade.
Here are some examples:
- Broke resistance line
- need to double my paycheck fast to buy that new car
- my girlfriend dumped me
- market in a general uptrend
Be honest with this trading journal. If you are honest, it will prevent you from making the biggest mistakes of your trading career. If you see that you are making the trade because of anything other than a sound trading strategy.. DO NOT MAKE THE TRADE!
Shut off the computer, walk away, and take a cold shower. Remember that you will never lose money that you don’t put in. A winning forex strategy is not only about how much you win, but how much you don’t lose.
Step 2 - Write down how you will exit the trade BEFORE making the trade.
Do not get trapped with great entry strategy without an exit strategy. Your strategy should have both great entry and exit strategies. One is useless without the other.
But you ask, “Why bother? I know my exit strategy. Why do I have to write it down?”
Well, the reason is this: humans are at best irrational, impulsive, and emotional creatures. If you have your exit strategy written down, you have a frame of reference when you exit a position. You will refer to your journal BEFORE exiting a trade. If you are selling for any reason other than your original exit strategy, you must ask yourself “why?”
Your trading journal will save you more money than you can imagine. It will prevent you from making impulsive moves, which is usually why people lose money.
Step 3 - Write down why you exited the position.
This should be the same reason that you wrote down in step 2. If it’s not, it is up to you to analyze it. The most common reason why people deter from their trading strategy is lack of discipline. Your journal will be looking back at you with glaring evidence of exactly why you are not a winning forex trader.
Step 4 - Analyze the results
You must learn from your mistakes. This is the best way for any forex trader to improve their trading. Everybody makes mistakes, but the great traders are able to learn from them and not repeat it.
And the best way to learn from your mistakes is to document them. A few years down the road, you can still look back and realize that you are still making the same errors you were when you first began.
This information can not be found in any book or seminar. Your trading journal is personal and is uniquely you. Your personality will determine the type of trader you will become, and will also determine the type of mistakes you will make.
Not only does your trading journal highlight your weaknesses, it will reveal the trades that are the most profitable. After a little while you will see the type of trades that make you the most money, and a pattern will emerge. Do not let this information go to waste.
You should do every effort to understand why those trades went well and try to replicate it as often as possible. Profitable forex traders know their strengths and weaknesses. They play on their strengths and try to minimize their weakness.
Do not get lazy and forget to write in your trading journal. Documenting your thought process is the fastest and surest way to get better at forex trading. Do this consistently, and you will learn more about your trading habits than you can imagine.
Your goal is to identify and break the bad habits as soon as possible. If you notice that you always hang on to a losing trade too long, you should do everything in your power to prevent this from happening again.
Summary
Your forex trading journal is gold. It contains a wealth of information that will play a vital role in your success as a forex trader.
I strongly urge you to use a trading journal for at least thirty days. If it hasn’t helped improve your trading in thirty days, then feel free to stop.
But be sure to try it before deciding not to. It may be just the tool to push you to the next level to becoming a profitable forex trader. (Brian Campbell)
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