It’s always great to hear from our traders and our traders speak to us regularly. One of the most common questions that we get is – How can I pass my evaluation easier?
We have put together this blog series to give you some ideas on what the traders who are passing evaluations are doing.
KEEP A TRADING JOURNAL
It seems tedious, it seems demanding, it seems like a waste of time, but its not. It is the thing that will allow you to properly analyze your thoughts, your processes, your success, and your failures. It will prevent you from opening countless trades that lack any reasoning or meaning. It will make you a long-lasting participant in the FOREX, Metals or CFD’s markets. THE TRADING JOURNAL.
A trading journal is a personal journal you keep that keeps your method on track. It is a place you can rationalize your decisions, show your thought processes at the time of trading and help you look back on where your mistakes have come from.
FOREX traders always have a reason to open a trade. But is that reason their edge? Your strategy may be a support and resistance strategy, but are you opening the trade at support or resistance? When writing in your journal you should express why you opened a trade. Something more complicated than “it was going up” or “it was going down”. An example of a simple diary entry:
Example: I bought EUR/USD at 1.2100 because it was long term support retested, a round number and the market had upside momentum for a trend continuance. My stop loss is at 1.2050 and my take profit is 1.2200. I will trail the stop to break even if the market goes to 1.2130. The result of the trade was …………
The example above shows you are trading with rational thought processes with a suggested edge from a trading strategy and not opening the trade randomly with no edge. An example of a not so useful entry would be:
Example: I bought EUR/USD at 1.2100 because I think it is going up, lets see how it goes.
This example shows your action, but no real reasoning for the action. If this was in your journal and you were failing, this would be a clear reason as to why you are failing. Avoid the trades that don’t have a strong rational edge.
NB: A trading edge is a strategic factor that puts probability in your favor of being correct. For example, some traders will use a moving average cross over as a trading edge. The probability of a moving average cross over strategy being profitable is highly dependent on the risk management parameters of the strategy as it holds a probability of success of less than 50%. So percentage of profitable trades over time x Risk : Reward = overall edge. Moving average crosses have (in general terms) a 42% probability of profit. It would require the Risk to reward to hold a reward advantage for this strategy to be profitable long term.
Further to your trading strategy and your trade entries, your psychology at the time is a very important factor when trading. We have all been in a situation where we impulsively trade due to a bad day, bad paycheck, or bad bank balance. There are two ways you can analyze your psychology. Firstly, you can do so at the beginning of the trading day. An example of that would be a journal entry like the following:
Example: Slept well last night, still upset that my girlfriend left me but hey, at least I have the FOREX market to keep me company. I am well rested but hoping the market rewards me today.
This entry would give you a good insight into how you are feeling when you win or lose in the market. Which state of mind is best for you when trading. In this instance the trader had a good rest, but broke up with his/her/their girlfriend. They are looking for the markets to make up for their loss in their life. It may be a good day not to trade if you are going through something like this.
An entry at the time of a trade would look something like this:
Example: I bought EUR/USD at 1.2112 because it was long term support retested, a round number and the market had upside momentum for a trend continuance. My stop loss is at 1.2050 and my take profit is 1.2200. I will trail the stop to break even if the market goes to 1.2130. At the time when I was analyzing the trade my cat was fussing with me and I got really agitated. I felt a bit like I was missing out on the trade and didn’t get an ideal entry.
In this example, the trade analysis was good, but the psychology suggests that the trader was distracted at the time of entry. If you are distracted it might be best not to trade.
NB: If you are suffering from a loss in your life such as a girlfriend, family member or pet, the My Forex Funds team are compassionate and are willing to assist where we can at the time. There is no reason for you to pressure yourself if you suffering from a personal loss and continue trading.
At My Forex Funds your success is our business and a trading journal is a strong way for you to become a successful trader like many of our already successful traders.
Whether it is a computer based digital FOREX journal or a hand written personal diary, a trading journal is an important part of your trading artillery.
Take care and good luck on your trading journey!