A trading diary is the perfect record to look back and analyze your trading behavior. You can begin with a normal diary, to keep with you and write down the information or even a spreadsheet on your computer will suffice.
Record everything in your trading diary and you’ll see rapid improvements in your trading in six months. When you are required to balance other things in your life, it is important that you are able to monitor and manage your open trading positions. It is important that when you are at work for example, you can easily and effectively make a decision on any of your open positions and execute that. One of the useful ways of facilitating this is to maintain a trading diary.
The example below is quite simple in its layout. In the example, HP stands for highest price which is the highest price the security has reached since entering the trade. Often, the exit price will be determined using a distance away from the highest price the security has reached since entering. LP stands for last price.
A trading diary should detail all of your trading decisions as in the example below, but also could include items such:
Your reasons for initiating a trade
Your emotions when initiating the trade
Short/medium term trends of the security and relevant industry sector
Daily adjustments of the exits.
A trading diary provides you with a methodical way of maintaining your focus with your trading but it can also assist you with learning from your mistakes. A trading diary like any diary can remind you of things to do in the future. For example, you may be waiting for a security to break out of a triangle or above the prevailing resistance level, so you can easily note that in your diary for a day in the future and it will remind to view the chart again and make a decision on it. This simple process can be very effective, make you more efficient and greatly assist your decision making.
As a trader, you are going to make mistakes and there will be times when you do not act in accordance with your documented trading plan. We are all people and therefore from time to time, our emotions will overly influence our decision making.
A trading diary can assist with a process of reviewing your trading performance and depending on how extensively you maintain the trade diary you may even be able, over a period of time, to become aware of your own behavioral traits and link those with your winning and losing trades.
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