Before reading this lesson, you should have previously read through:
The previous lesson introduced you to how important it is to keep a trading journal and what to generally record in it. This lesson will show you precisely what to record and how to turn that data into useful information.
Collecting and analysing trading data
Before trading aon a live , experienced traders will thoroughly test a strategy on a account and determine whether it is profitable over a sustained period. When they start trading that strategy with real , they will continue to record their results and constantly monitor them.
This collection of data is a trading journal.
The easiest way to record the data of your trading activity is using a spreadsheet. This allows you to very quickly analysis a lot of data to get useful information.
The image below demonstrates what such a spreadsheet may look like:
If you would like the same trading journal as we have displayed, we have created one for you to download and start with:
What trading data should you record?
You are essentially looking to record as much information as possible for every trade that you take. The data you are looking for is everything that will help the performance of the strategy and more importantly, the kind of performance that can be expected in the future.
Time and date of each trade
This is especially helpful information to findpoints when looking back over your . You can find the exact market conditions at the time when you entered your trades. There may also be certain times when the strategy either works well or breaks down completely – recording the time and date will highlight these periods.
The financial instruments being traded
Keeping track of theyou choose to trade with will help you determine profitability for each instrument over a sustained period of trading. Not all financial instruments behave in exactly the same way, some assets have different or costs of trading and so not every asset will work under your strategy. It is essential to record what you are trading in order to cut the unprofitable from your trading strategy.
Entry, stop loss and exit prices
Recording these makes it much easier for you to check and verify each trade when looking back over your trading results and your charts. It will allow you to determine information such asratios and the initial risk that can safely be traded with the strategy, as well as analyse individual entries.
The results in pips, percentage gained and cash values
Recording yourwill allow you to get a more accurate picture of whether the strategy is worth pursuing. As well as monitoring the profitability of the strategy, you will also be able to assess the strategy’s risk to reward results and whether trading the strategy, in reality, produces the same risk to reward as expected.
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Turning the data into useful information
Once you have collected this data, the next step is using it to provide meaningful information. The amount of trades taken is a huge factor. For example, results based on 10 trades are nowhere near as valid as results based on 100 trades. The image to the right shows how this may look like in a spreadsheet. The following is the information that you are attempting to attain:
Overall profit or loss
This should be shown as cash value and ideallyvalue as well.
Distribution of wins, losses and breakeven trades
This helps to determine the ratio of winning versus losing trades. It also helps traders decide exactly how much of the account can be risked on each trade and determining the overall risk to reward that can be taken using the strategy.
Average risk and average reward
The average risk to reward is vital so that expectations can be more aligned with the reality of the performance. This can have a positive impact on yourwhen trying to follow the strategy closely.
The image to the right shows how the information attained can be used to produce ancurve that can visualise the performance of the strategy:
So far, you have learned that ...
- ... traders will use a trading journal to test a strategy on a demo account and also continue using it to monitor the performance of a strategy.
- ... a spreadsheet is mostly used to record the trading data.
- ... you should record data such as the time and date of each trade, the exit, stop loss and exit price.
- ... you can use the raw data that you collect on each trade to turn into useful information.
- ... the information acquired includes the overall profit or loss, distribution of winning and losing trades and the average risk to reward ratio.
Learn how to test your strategy using your trading journal:
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