How To Keep An Effective Trading Journal For Binary Trades

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Trading Journal For Digital Options Or Binary Trades

A trading journal is the number one tool that helps traders improve and make money with binary options. It helps them identify strengths and weaknesses and improve both. This article explains how a trading journal works, and how you can use it to become a better trader.

In detail, you will learn:

  • What Is A Trading journal?
  • Why Do I Need A Trading journal?
  • Three Tips For A Good Trading journal

With this information, you will be able to become a better, more successful binary options trader.

What Is A Trading journal?

A trading journal is a place where you keep track of your past trades. It can be an actual journal, for example a notebook, or an electronic version, for example an Excel file. The important thing is that you choose a form that is comfortable for you and that allows you to use the journal as well as possible.

In a trading journal, you write down every trade you make. It should at least answer these question for every single trade:

  1. Which trade did you make?
  2. What was the result of the trade?
  3. Why did you make the trade?
  4. Which tools did you use?
  5. How did you feel when you made the trade?

You note the asset, the direction, and the expiry, but also the indicators that you used to generate the signal, the amount of money you invested, and other aspects of your strategy. Also, write down the soft factors of the trade. Where were you? Were you tired, relaxed, or anxious? Which time was it?

You can adapt the categories that you write down to your personal needs. Some traders might need to add a few things to their trading journal; some might be able to do without some things. Over time, your journal will evolve, and you can adapt it to your needs. So don’t worry too much in the beginning, just get started and then take it from there. You will learn and adapt.

Why Do I Need A Trading journal?

There are three main reasons why a trading journal is one of the most essential tools of a binary options trade. These reasons are:

Reason 1: You Need A Trading journal To Make Money

No trader starts out with a perfect strategy. When you are new to binary options, you are unable to predict which trading style suits you, which type of assets fit your personality, and which types of indicators fit your strengths. Therefore, we all start out with imperfect strategies.

Successful traders move past this stage. A trading journal is a tool that can help you master this challenge, too.

A trading journal allows you to look at your past trades and distinguish the things that make you money from the things that cost you money.

  • When you win significantly more trades in the morning than in the evening, you know that it might be best to only trade in the morning.
  • When you win significantly more trades based on one indicator than on another, you know that you should focus on the indicator that makes you more money.
  • When you win significantly more trades based on currencies than on stocks, you know that it might be best to focus your trading on currencies.

In these and similar ways, a trading journal helps you eliminate unprofitable parts of your strategy and focus on the things that work for you. Step by step, you will get closer to a great strategy.

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Binary options even of a tool called a demo account that allows you to get through this process without losing money. Demo accounts use play money instead of real money. You can develop your strategy in a risk-free environment, and switch to real-money trading when you know that you can make a profit.

A trading journal is the tool that makes this process possible.

Reason 2: You Need A Trading journal To Keep Making Money

Once you have found a money-making strategy, you still have work ahead of you. There are two great threats to traders with a working strategy:

  1. When a system works well over a long period of time, we often get a little negligent. We rest on our laurels and mistakes creep in. Over time, this process can erode our strategy and turn a functioning system into one that loses money.
  2. Changing market environments. Sometimes, strategies work especially well for a certain type of market. If you developed your market strategy during a boom phase, you might have found that investing in rising prices makes you more money than investing in falling prices. During a crisis, this strategy might perform worse for you.

A trading journal helps you recognize both problems and counteract them before they lose you money.

  1. A trading journal helps you understand your winning percentage. When your trading journal tells you that you have won significantly fewer trades this month than in the months prior, you can check the way in which you invested. Compare your trading, and you are likely to find the mistake you made. If you did everything exactly as always, it might just be coincidence, and you still are on the right track. It’s also possible that the market environment has changed, which brings us to our second option.
  2. A trading journal helps you understand which strategy suits which market environment. If you used to win a high percentage of your long trades in a booming market, but are now losing a lot of long trades, your diary points you to the fact that something might have changed in the market. You can now take a look at the big picture. If the market is in a crisis, you can immediately spot the connection. You know that now might be a good time to focus more on short trades until the market turns around. Over time, you can develop multiple trading styles and always choose the one that suits the current market best.

Reason 3: You Need A Trading journal To Be Better Than Others

On the financial markets, the money that one person makes is the money someone else loses. Brokers mediate between both parties and take a small cut, but in the end, one person’s loss is another one’s gain.

To come out on the better side of this equation, you need to be better than other traders. A trading journal helps you achieve this goal. You will quickly get better than all traders without a trading journal, which is a giant first step. And you will quickly get better than the other traders, too.

To be successful, it is important that you understand that you have to better than other traders. Binary options are not about beating your broker. Your broker will always its payout in a way that allows them to make money, but not so much money that they lose customers. If the average trader could turn a profit with an average payout of 75 percent, you broker will offer an average payout of 73 percent. To make money with binary options, you have to be better than the average trader – everything else will come by itself.

Three Tips For A Good Trading journal

Tip 1: Understand Yourself, Then Create Your Journal Accordingly

The most important requirement for a good trading journal is a solid understanding of yourself. When you know what makes you tick and what influences your actions. Then build your trading journal around these characteristics. Measure them and their effect on your trading. Sooner or later, you will be able to determine the things that help you make money.

Here are a few tips for points you should consider:

  1. Your state of mind. Most of us make their best decisions in a certain state of mind. There are few people who can truly act well under all conditions. Try to understand which states of mind hurt your trading and avoid trading when you feel like that. The important things to understand is what the term state of mind means to you. Some people find it difficult to trade when they are hungry, some when they are heartbroken, some when they have to pee. Understand yourself, and you will know the degree to which you have to analyse your state of mind.
  2. Your tolerancefor risk. Every trading style has its own unique relation to risk and reward. Some of us are frightened by a risky trading style; others are bored by a safe one. Both styles can work, but only if you execute them error-free. Understanding your own tolerance of risk helps you to choose the right type of strategy. Maybe you could classify every trade’s riskiness on a scale from 1 to 3, and see which type of trade works best for you.
  3. Your need to be right vs. your need to win big. There are two basic approaches to trading binary options. One type of strategies wants to win a high percentage of trades and make a little money with each winning trade. Others want to maximize the profit on winning trades and accept to win a lower percentage of trades. Both approaches can work, but only if they suit your personality. Some traders need to be right most of the time – they should prefer the first type of strategy. Others want to get big rewards when they are right – they should prefer the second type of strategy. Understand yourself, and you will be able to pick the right type of strategy.

We could name many more examples, but you probably understand how this works. A good trading journal is tailored around your personality. Understand your personality, and the rest will come.

Tip 2: Make A Table, Don’t Write Full Sentences

By writing your trading journal as a table, you enable yourself to perform a quicker analysis and recognize more connections that if you write full sentences. Tables are easy-to-analyse and you can easily see trends, causes, and effects.

We recommend to use the details of your trade and the important aspects of your mind set as tables and find a way to quantify the data you collect or at least break it down to only a few words. For example, you could quantify the peacefulness of your environment on a scale of 1 to 3, if this is important to you, or you could write down the names of the indicators you used.

Some traders make the mistake of writing out the reasons for every trade in long paragraphs, but these paragraphs are difficult to analyse, compare, and quantify. This type of trading journal often ends up being useless.

Tip 3: Use modern technology

Trading diaries in the form of an Excel file allow you to automatically calculate most of the data that you need to evaluate your trading, which makes your analysis simpler, mistake proof, and more accurate. Within seconds, you can calculate hundreds of parameters and find out which decisions positively affect your trading.

For example, you could automatically calculate your winning percentage for long and short trades or trades in a certain mood, which would quickly alert you to changes and tendencies within your trading.

While written trading journals are good tools, too, they complicate the evaluation process, which limits their usefulness. Unless you are complete anti-technology, we recommend using the advantages a computer calculated trading journal offers.

Conclusion

A trading journal is an efficient tool that can help you become a better trader by understanding which parts of your strategy work for you. We recommend that every trader uses a trading journal. You need to create a money-making strategy, keep improving, and avoid mistakes.

A good trading journal is based on a solid understanding of yourself, is in the form of a table instead of full sentences, and uses modern technology in the form of an Excel file or similar automated calculation tools.

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Marcio

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Talk to any trader, and we can bet that they are searching for the holy grail of success. Seasoned traders have grown to figure out that there isn’t a holy grail or secret, so to speak. A successful trader plans and knows which tools are best suited for the job.

A trading journal happens to be the most powerful tool in any trader’s arsenal. It can help a good trader become better. A journal, as you might have already guessed, is a written record of what is happening during a given trading day. You should add essential factors like the day’s market conditions, sizes of each trade, prices, expiration times, success rate, and your own emotions. Make sure to customize the journal entries so that they fit your style of trading.

Sure, some people may balk at the thought of keeping a trading journal because, after all, it is tedious. That said, recording your trades will help to keep you consistent and accountable, which means disciplined, and that is what pays off in the long-run. Let’s look into other reasons why a trading journal can make you a successful trader.

You can use the notes to analyze which of your trading strategies are working and which aren’t. You should take note of the various charts you’re using, also the patterns you’re watching as well as how various events are impacting your trading abilities. What this will do is help recognize the mistakes you might be making, which are costing you a lot of money.

For instance, you’d probably come to the realization that you’re exiting trades too hastily which is costing you money. You could also be setting the wrong limits and also in the wrong places. You could also be falling victim to incorrect signals. So, primarily a journal will help prevent you from repeating those mistakes.

Hone Your Trading Technique

When you have a detailed record of all the past trades, it allows you to identify weaknesses. Remarking about how you feel each day is a good idea because it can help you realize if your decisions are driven by emotion, which is hurting the trade. A journal will reveal what type of trader you are and what needs to be focused on to improve your skills.

Keep an Eye on Progress

If you have been a trader for a very long time, it can be hard to gauge success. When you write down everything, i.e. your goals, it helps you keep things on track. It also helps to keep you motivated and inspired by looking back at where you started from and how far you’ve come. Not to mention that having a trading journal will help you keep an eye on your growth as a trader, which in turn will instill more confidence.

As you can see, there are numerous advantages to having a trading journal. However, these are just the tip of the iceberg. Keeping a trading journal does not have to be tedious, it is up to you how it is made fun so as long as you keep track of all the useful stuff. So, what are you waiting for? The time to start keeping a journal is right now.

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How to Keep a Trading Journal the Easy Way

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Trading journals help traders track their trades and thoughts throughout the day. It’s a great tool because a thorough journal includes details beyond what you can see on your brokerage statement. It includes what market conditions were like and if you were distracted or made mistakes. It’s also where you can record strategy ideas which may arise as you trade throughout the day.

All traders should keep a trading journal, but day traders don’t have time to be spilling their guts on paper all day. Keeping a trading journal while trading — when the action is happening — actually could be counter-productive and lead to missed trades.

There’s an easy solution, though, that involves absolutely no handwriting and gives you a historical record of the exact market conditions you were facing on a particular day.

The Easy Way

A picture tells a thousand words, right? Perfect, let’s use a picture. Instead of writing about market conditions, mistakes, what went well, and new strategy ideas, take a screenshot of the trading day with some typed annotations on it.

Most traders mark up their charts throughout the day, drawing lines and marking indicator levels which help determine the trend and find possible reversal/target points. The chart shows the exact market conditions being traded. Intraday analyses can show your perception of the market that day — something words in a trading journal never could describe as well.

A picture is an easy way to keep a trading journal, but you must include certain things to make it useful when you look back at it for review.

How to Mark Your Charts

These basic guidelines for marking up your charts will make them useful for future reference.

  • Include an hour or two of price action before you begin trading, if applicable. This provides a context for what was happening when you started trading. You don’t need to include price action from the prior day. Doing this can help you better assess time frames to watch while trading.
  • Mark your start time with a vertical line or text note on the chart. It lets you know if you started trading early or late, and/or why you may have missed some trade signals earlier in the day.
  • Write down the times of major economic events you will be stepping aside for. When that time comes around, make a note again that you weren’t trading because of news.
  • Make text notes throughout the day about tendencies and market conditions you notice. If you make an error, make a note of it. If you miss a trade, make a note of it.
  • Keep as many trendlines and drawings on your chart as possible, assuming they don’t distract you. They help to show your future self how you were seeing the market in real time at any given moment.
  • Mark when you stop trading for the day with a vertical line or text note.
  • Type how many trades you made, how many winners, the total profit for winning trades, how many losers, the total loss for losing trades, and the net result. Avoid using dollars, which fluctuate based on position size. Instead, use pips for forex, cents for stocks, or ticks/points for futures. For example, if trading the ES Futures contract, instead of writing “4 winners, $400; 4 losers, $200 = net +$200,” write “4 winners, 8 points; 4 losers, 4 points = net +4 points.”

At the end of the trading day take a screenshot of your chart and paste it into a photo editor. It should include all the information above. If you can’t see everything on one chart, take two or three shots and save them separately.

Save each day with the date as its file name, and keep them in trading folder saved to an easily accessible location on your computer or in the cloud. Create subfolders for each year and month to make the files more easily searchable.

Reviewing Your Journal

At the end of each week and month, go back and see what you did, notice common problems, and spot your strengths. These observations can help you exploit your strengths and highlight the areas you need to work on.

Taking screenshots is more effective at capturing information than you could by just writing in a journal. Plus, if you do want to write stuff down, you can do so right on your charts, or keep a written trading journal as well. Be diligent in this routine, so that you have every trade you make recorded.

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