Trader’s Diary – should I have one?

Hello, fellow forex traders!

Today we will talk about such a thing as the Trader’s Diary. This is an important element of success that can become critical on your path. Today we will talk about why we need a diary, about the so-called hindsight bias, about what types of diaries exist, which ones are better and what you need to put in a diary.

Why do I need a diary, if there is Myfxbook?

Many traders have a question: “Why do I need a diary if I have monitoring on myfxbook?”. That is, why do you need to have your own statistics if the site automatically calculates the percentage of profit in a month/day, various trading indicators, all transactions are visible and so on?

I would like to start with the fact that monitoring and diary perform different functions. Monitoring is the tracking of indicators, the analysis of transactions, which, for example, will help to identify leading currency pairs, trading in which the most successful and lagging instruments, whose indicators are worse.

The diary performs a somewhat different task; it is primarily working with psychology. One of the main tasks of the diary is to help you avoid the so-called hindsight bias (mistake). Hindsight mistake is a phenomenon when, after the event, you feel as if it was easier to foresee it than in reality.

Hindsight Bias

This is a popular psychological phenomenon, having over 800 studies devoted to it. The fact is that a person’s memory is arranged in such a way that he can very quickly learn new information and connect it with the already available knowledge. For example, you will learn about the victory of the home team in a football match. The information you receive is linked in your head with the knowledge already available about the parameters of the players, the work of coaches, league politics and so on. Once there is a close connection between the old and new information, you can begin to experience a sense of clarity, the past becomes more understandable, and it seems to you that this victory was easy to predict. Traders often like to talk about transactions that they did not conclude (but they knew that the price would definitely go there!).

With the help of the diary, you can eliminate these post-factum judgments and record your analysis without distortion at the time of the transaction. After that, you can already watch and draw conclusions, have you seen what you then seem obvious or not.

Ways to keep a diary

Paper or combined diary

The most obvious way is to keep a paper diary. We all know that trading appeared long before modern computers. The first stock exchanges were on market squares, where merchants traded for some kind of goods. Then there were already more organized exchanges, trader’s pits, where traders simply shouted out prices. If then there were computers, they occupied half a room.

Naturally, Excel did not exist then, so the recording of transactions and the drawing of charts also was carried out manually. Accordingly, the diary could also be in paper form. Nobody makes you draw a chart for each transaction, just save its screenshot.

In MetaTrader, this is done quite simply: Right mouse click > Save As Picture > Active Chart, and uncheck “Post Image Online.”

So, you print out screenshots and paste them into some large notebook, best of all in A4 format. In general, you can insert a chart into a Word file so that the top is the picture itself, and below you can add a description of the transaction. Then, fasten such pages together, you will get a paper diary in electronic form, kind of combined.

But, nevertheless, a diary written by hand, allows you to better remember information, due to the inclusion in the work of fine motor skills. The result of such work will be more noticeable than in the case of using a fully electronic diary or a combined version. But, this is already a matter of taste.

Electronic diary

The electronic version of the diary is, in fact, the same combination that we do not print, but simply store it on a computer. You can also keep a diary in Excel, especially if you do not use screenshots. For example, you trade solely on the fundamental, then you can write down the date, the transaction itself, how many lots and what currency was bought, and the basis for the transaction: “Trump wrote a tweet about launching missiles towards North Korea, so we buy/sell the dollar.”

Alternatively, you can run a mini-blog with your transactions on LiveJournal, Facebook, or create a thread on the forum, like Forex Factory. People publish not only their transactions, but also simply write down their thoughts, share ideas. This option is interesting because you can get constructive criticism of your actions. True, not everyone can share his or her transactions for moral reasons. Therefore, a forum or a blog topic on that will not suit all traders.

There are also web-based services for keeping a diary. For example, the EdgeWonk service. But, this service is more devoted to the analysis of transactions, that is, it resembles the analog of the myfxbook service, MarketStat and the like. In my opinion, a diary should be presented in a more classical form.

Video diary

Another way to keep a diary is to record a video. It is suitable for those who actively trade: scalpers and adepts catching fast movements, when printing and recording each transaction is simply technically inconvenient. But, to comment on your actions right at the time you open your deals can be very useful, even if you do not revise it later.

Of course, it will not hurt to review, but when you record and comment on the video, willy-nilly, you become more aware. Let’s say you are opening a chart and think that now the moving average will break the price and say it out loud. What stop-loss / take-profit, when you are going to close the deal, which lot and why….

What to write in a diary

Let’s start with the obvious thing:
• Date of trade;
• Screenshot;
• The result of the transaction;
• Comment.

There can be several screenshots, for example, before and after the transaction, or screenshots with different TF. In the comment, you can specify a transaction plan in advance or an analysis of past transactions.

You can also record your emotional state by rating on a five-point scale (as far as you are in the flow).

In addition, you can write any nuances about the transaction like how you feel at that time. It may seem ridiculous, but it’s a signal about psychosomatics - the subconscious tells you that it’s not worth entering into a deal. There is a well-known story about how George Soros’s son told that he ran to close the deals when his back hurt, regarding it as a signal.

The diary is a good thing, it helps not only to analyze the transactions but also to splash negative emotions - it allows you to look at them differently, in a slightly different light. That is, you are, as it were, reporting your emotional reactions, and then you can return and reconsider them.

Pay much attention to transactions that were opened by the rules and without strong emotional outbursts, not worth it. If the transaction is allocated some kind of a strong loss or profit, it should be analyzed more carefully. Everything that deviates from the average statistics is worthy of analysis.

Also, you can analyze the groups of transactions and, for example, compare them with previous groups. Let’s say we take groups of 20 trades, and consider them an average profit, loss. Then you can observe how the indicators improve or, conversely, deteriorate - and adjust their trading strategy.

Conclusion

The benefits of maintaining a trader’s own diary are hard to overestimate. At least, it’s worth trying to start a diary and see what happens. Perhaps after a while, you will see how your results start to improve and you will learn not to rethink the wrong transactions after the fact.

Regards, Michael

ForexTraderPortal.com