You may wonder why it is necessary to keep a separate trading journal since just about every broker provides a real-time record of your trades. In fact, one could argue that the broker's record also keeps track of available buying power, margin usage, and profit and losses for each trade made. Still, there are benefits to keeping a separate trading journal, and here is why.

### Historical Record

Over a period of time, the journal will provide a historical perspective. Not only will it summarize all your trades, but it will provide, at a glance, the state of your trading account. In other words, it becomes your personal performance database, which will provide you with the opportunity to go back in time and determine how often you traded, how successful each trade was, which currency pairs performed better for you, and even what time frames gave up the best profit percentages.

### Methodology Verification

﻿Another very important by-product of a trading journal is the fact that, over time, it will verify your methodology. You will be able to see just how well your system performs in changing market conditions. It will answer questions like: How did my system perform in a trending market, a range bound market, different time frames, and the impact of your trading decisions such as placing stop-loss orders, too tight or too loose? In order to retain the full details for the logic behind a particular methodology, the trading journal must be fully comprehensive.

### Mind Pattern Modification

Having a journal that gathers your statistics sets up a trading plan by defining parameters of action needed, provides a rear view mirror so that you can measure how well you executed each trade, and most importantly, provides you with the feedback to develop and evolve your trading skills. You will find a good trading journal to be a best friend and mentor as you make progress. (Market hours for Tokyo, London, and New York determine volatility peaks. Find out how in The Forex Three-Session System.)

### The Two-Part Journal

It is recommended to set up a trade journal that accomplishes two main concepts:

• A chronological columnar list of trades you can total and aggregate so you can have a record of all your efforts. This is best accomplished by handwriting in the columns all the pertinent data. Of course, you can keep records using an Excel spreadsheet that can automatically do the math for you, and which will remove simple calculation errors. This depends on your own abilities in spreadsheet modeling.
• A printout of the actual chart you used to determine the trade, indicating your entry level, your stop-loss level, and your potential profit level should be clearly marked up on the chart. Mark the reasons you made the trade on the bottom.

Finally, you should set up a journal for each type of trading methodology or system you employ. Do not mix systems, as the results of your trades will derive from too many variables and will then be inconclusive. Therefore, if you have more than one trading system or methodology, you should keep a journal for each one.

Every trade you record should be based on only one particular system, which will then give you the ability after 20 trades or so to calculate the expectancy or reliability of your system.

Here is the expectancy formula:

﻿\begin{aligned} &\text{Expectancy} = \left [1 + \frac{W}{L} \right ] \times P - 1\\ &\textbf{where:}\\ &W = \text{Average Winning Trade}\\ &L = \text{Average Losing Trade}\\ &P = \text{Percentage Win Ratio}\\ \end{aligned}﻿

Example: If you made 10 trades, and six of them were winning trades, four losing, your percentage win ratio would be 6/10, or 60%. If your six trades made $2,400, then your average win would be$2,400/6 = $400. If your losses were$1,200, then your average loss would be $1,200/4 =$300. Apply these results to the formula and you get:

﻿$P = \left [ 1 + \frac { 400 }{ 300 } \right ] \times .6 - 1 = .4$﻿

or 40%. A positive 40% expectancy means that your system will return you an additional 40 cents over every dollar in the long term.

### The Bottom Line

Once you know your system's expectancy, you can act with confidence. Confidence is the key to execution. If you lack confidence you will not be able to execute your trades according to your plans and you will either second-guess yourself or become paralyzed from too much analysis of data coming in from the market. Make a trading journal your first trading habit. It will become the key to all your good trades in the future.