Sure, writing down your trade results is great but at the end of the day, numbers don’t tell the full story.
It’s not only about whether you won or lost a trade but it’s also important to note how you felt when it happened.
Maybe you’ve caught yourself wrapped up in one of the psychological stimulis we discussed in the previous lessons? Or maybe you stopped yourself from trading based on greed or anger?
Whatever it is, it’s time you started a psychological journal! Why?
Well, did you know that the financial market has tendencies?
Yup, that’s right and the same way it tends to react to market events and environments, you as a trader also tend to behave in certain ways, either through your reactions or trading behaviour.
And the truth is, we often overlook these tendencies and the effect they have on our performance.
You see, through our lives we develop coping mechanisms to help us deal with situations of distress.
For example, the first time you touched a boiling kettle, you’ve learned that it can be incredibly hot. To avoid the same experience and pain, you’ve learned to only touch the handle of the kettle.
Eventually, coping mechanisms like these turn into habits and come to us naturally.
But not all coping mechanisms we develop are positive. Sometimes, we develop coping mechanisms that lead us to behave in a certain way and make not so great trading decisions.
We are all guilty of this.
Seriously, just think about it.
How many times have you let go of a winning trade just because the market moved against you for a little while?
Probably more than once.
And afterwards? You were probably beating yourself up about it knowing you could’ve won that trade if you had just followed your trading strategy in the first place.
And that’s one of the main reasons forex traders keep a psychological journal, to help them recognise the negative patterns in their trading behaviours.
Are you ready to start your own trading journal? Below we will discuss some tips to get you started!
Write down what’s currently happening in the market and why you think your trade is going to move your desired direction.
Ask yourself, what the dominant themes of the market are right now. Is your trade a risk? Is your trade in line with your risk management strategy?
If you’re happy with placing your trade once you’ve answered these questions, move on to the next step!
Now that you’ve covered what’s happening in the market and why you believe the trade will go in your direction, it’s time to ask yourself some questions about YOU.
How are you feeling? What are you thinking? Are you going through any stressful periods at the moment?
It may feel weird writing about your emotions at first, especially if you’ve never done it before but it will be worth it down the line when you start recognising your behavioural patterns.
It doesn’t matter how small the things that are affecting your mood are, WRITE IT DOWN!
Annoyed because you’re having a bad hair day? Write it down.
Angry because your wife ate the last piece of cake? Write it down.
Sad because your football team lost the game? Write it down.
Frustrated because you’re out of coffee? Write it down.
There’s nothing too small and there’s nothing too big. Write down every little thing, every possible factor that could be impacting your decision-making (even if it is a bad hair day).
Note the outcomes of all your trades to determine the emotions that have influenced your trades whether they’re positive or negative. To find possible issues, you can ask yourself the following questions:
Did you close early because you were impatient?
Did you find it difficult to concentrate that day?
Did you move your stops?
Did you risk more than you usually do?
Did you follow your trading plan?
Remember, the goal is to recognise behavioural patterns and their consequences.
Being able to learn from the things that cause you distress is critical and helps prevent these situations and habits from further damaging your trading account.
Once you’ve got enough ‘data’ in, you will be able to clearly identify the impact these behavioural patterns have on your trading account and eventually refrain from them if they re-occur.