By: Terry Allen
Are there any real benefits that can be achieved by maintaining a trading log? Yes, there are! In fact without creating one, your chances of trading the Forex Market successfully are greatly reduced. In order for you to be able to perform any useful analysis at a later date, you will need to record the following items as a minimum for each Forex trade that you activate:
1. Date
2. Time
3. Entry price
4. Number of lots opened
5. Protective stop value
6. Reasons for entering the trade
7. Target price (if any)
8. Exit price
9. Reasons for exiting the trade
10. Result
After you have catalogued a sizeable batch of results, you will then be able to analysis this data in order to detect trends. You could do this by asking such questions as the following:-
1. After entry, did the market proceed as anticipated?
2. What was my largest reversal and did I need to make a drawdown?
3. If a loss was recorded, was there a prior opportunity to take profit?
4. Did I succumb to moving my stop during the trade?
5. Did I trade in the same direction as the daily trend?
6. Did I let profits run and maximize my gain?
7. Could I have improved my entry and exit conditions?
8. Did any serious fundamental data releases affect my trade?
9. Could I have managed the trade better?
10. Did I overtrade?
11. Did I let my emotions affect my trading?
One of the many good reasons for keeping a trading diary is that it will assist you in understanding if Pareto’s Principle has any impact on your Forex Trading. This rule states that in all human activities only 20% of the actions involved are vital whilst the remaining 80% are trivial. Examples are: 20% of your stock takes up 80% of your warehouse and 20% of your sales staff generate 80% of your sales. Pareto’s rule therefore implies that 80% of your profit will come from your actions associated with only 20% of your trades. This is where recording a trading Diary comes into its own. In order to identify the vital 20%, you must develop a strong understanding of the statistics of your actions and their consequent results.
You should use Pareto’s rule to stop deluding yourself that you just think your trading system is successful. You need to analyze the key components to prove this fact and then make it more efficient by identifying the key 20% of your actions.