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The importance of having a trading journal to increase your trading edge

Updated: Aug 16

Trading journals, you probably have heard of it many times. A trading journal is one of the tools every successful trader uses to become better. If you don’t have journal, you will fail. Plain and simple. How are you going to learn from your mistakes and get better if you don’t know what mistakes you are making? In this article you will discover why having a trading journal is essential to your success as a Forex Trader and how it can help you to increase your trading edge.


Why is learning from your mistakes important for increasing your trading edge?


Learning from your mistakes is important for a few reasons. Because of this, one of the most important things we teach at CDFX Trading is learning from your mistakes. Everyone makes mistakes in trading. They are part of the game. However, if you never learn from the mistakes you make you never make any progress and the mistakes you made have been a waste of time and money. Learning from your mistakes allows you to get better at your own personal way of Forex Trading. Every Forex Trader is different and uses a different approach to trading. Everyone sees the charts a little different. Because of this, everyone has their own personal journey. Yes, coaching and mentoring has it’s place to teach you concepts and guide you, but at the end of the day it’s you that has to put in the work.


If you learn from your mistakes you get better. If you don’t improve in trading you will never become a consistently profitable Forex Trader. Even if you are already a profitable Forex Trader you still need to improve, otherwise your edge goes away. There are numerous stories out there about people that thought they “cracked” it in Forex Trading, so they quit working on their age. A few years later they start to lose money because there edge no longer exist. This is not something you want to experience. So keep improving and keep learning from your mistakes, it’s the only way.


Developing a routine & structure


When you have a trading journal you make room for structure. Everyday you fill in your trades and every week you review your trades. This gives you a routine and provides structure. As we all know by now, a consistent routine creates consistent results. So start by developing a routine around journaling and improving. It will help you to become a better Forex Trader.


People are often very undisciplined, then, once they start trading, they think they will be disciplined at following their plans. This is not the case. If you are not disciplined in real life you will not be disciplined in trading. So develop a routine that allows you to get better. This way you learn from your mistakes and develop discipline, which is vital in Forex Trading. Without discipline you will never make it. You might as well quit already if you are not ready for doing this and working on your discipline.


How to start improving your trading edge?


To start improving your trading edge, step 1 is to get a journal. It’s that simple. Either buy one or make one. In our coaching series we go over everything you need to know about trading journals. Most people find it very boring to journal their trades, however, it’s not boring to improve and make more money. Every successful trader out there has some kind of way to get feedback from what he is doing and then learn from his mistakes. If you want any chance at making it as a Forex Trader, you should do this too.


Once you have a journal it’s important to find out what you want to track. These things can be:


· Printscreens

· MAE

· MFE

· Succesful execution rate


There are a lot more things you can track in your journal. These are just some basic ideas we think everyone should be tracking in order to become a better Forex Trader. Feel free to add in more for yourself. It’s your journey.


Let’s dive deeper into these concepts:


Using printscreens can be an great way to analyze your past trades, especially for discretionary traders. Looking at printscreens allows you to see what the market was like. You can compare printscreens and see if anything stands out. Find ways to connect your losing trades and your winning trades. When are the chances of a winner higher? When are the chances of a loser higher? We, at CDFX Trading, review our performance every quarter. We do this by looking at printscreens, statistics and other data. The key questions we ask during this review are:


· How can I make more money on my winning trades?

· How can I lose less money on my losing trades?

· How can I make less losing trades?

· How can I make more winning trades?


Answering these questions makes sure you improve your trading. There are different ways to answer these questions. It’s totally up to you to decide how you do that. The point is to review your performance and learn from it in order to increase your performance in the future and make more money as a Forex Trader.


The MAE is short for Maximum Adverse Excursion. The MAE measures how far price went against you before hitting your target. Let’s say you enter at 1.00 with a stop at 0.50 and a target at 1.50. Price moves down to 0.70 and then goes on to hit your target. The MAE measures the move from your entry to the lowest point before hitting your target. In this case it’s 0.70, which means the MAE is 0.30. This is not exactly how it works, but this is the general idea. The MAE can give you great information to increase your Forex Trading performance. As a Forex Trader the MAE & the MFE can massively increase your edge.


When you know that price on most of your trades only goes down 50% towards your stoploss before hitting your target you can decrease your stoploss which massively increases your payout. This can be very powerful.


You want to measure your MAE statistics on your winning trades.


The MFE is short for Maximum Favorable Excursion. This measures how far price went towards your target before hitting your stoploss and can be used to cut potential losing trades before they become actual losing trades. The MFE can also be used to optimize targets. Let’s say your target is always at 1R, but because you kept track of your MFE statistics you know that in 70% of the winning trades 2R was hit. Now you know that you can increase your target and make money. Again, this is just a basic example but this is the power of knowing your MFE.


You want to measure your MFE on winning and losing trades.


The MFE & MAE can make you a way better Forex Trader. When used correctly it can help you decrease your stoploss size, & increase your target size maximizing profits. We at CDFX Trading use these statistics very often and it has helped us increasing our edge by quite a bit. If you want to become a better Forex Trader, the MAE and MFE are indispensable.



You also want to track your successful execution rate, which is basically a way to measure how well you traded. If you followed your plan give yourself a 1, if you didn’t note down a 0. At the end of the quarter look at how often you did not follow your plan. Then, find out why. Come up with a plan to follow your plan in the future.


These are just some examples you can track in your trading journal and show you why a trading journal is so important if you want to become a good Forex Trader. Again, if you want to know more, you might want to check out our 1-on-1 coaching program which goes deep in to journaling and what to journal.


Statistics


The MAE & MFE are statistics you can track to improve your performance. There are way more statistics out there that you can track. Statistics can help you quantify things about your trading and take the guesswork out of it. This can give clarity and can help you improve your Forex Trading skills. For this reason, we like statistics. Statistics are the basics of our edge and improvement routine and are in our opinion vital to your success as a Forex Trader.


Putting it all together


Journaling is essential to grow as a Forex Trader. It helps you track mistakes, build discipline and keep improving. If you are not improving as a trader you are moving backwards. The sooner you start taking this serious, the better.


If there is one thing you take away from this blog it’s to get a trading journal and start measuring your performance in order to learn from it.


Only you can change your trading results, only you can make yourself a better Forex Trader.