Importance of Forex Trading Journal for Forex Traders

Category: Forex Market Analysis and Signals | Monday, January 18th, 2010

As you know, having a trading journal is something that I always emphasize on. On your forex trading journal, you should record all your trades, including the good and the bad ones with the exact entry/exit date and time and also the chart screenshot for each trade which is more important than anything else. Every now and then, you should sit and check all your good and bad trades that you have recorded in your trading journal and see why a trade has been a good trade and why another one has been a bad trade. After a while, you will see that your trading journal is the best and biggest teacher you could ever have. It saves you a lot time and helps you become a good trader much faster. If you made a bad trade, do not run away from it. You can learn a lot of things from a bad trade. Analyze your bad trade and try not to make the same mistakes next time that you want to take a position.

I have also created a Microsoft Excel spreadsheet that helps you to record your positions and analyze the reason of your success and failure in your different trades. Now that we are at the beginning of the year, I suggest you to start your trading journal and record all your positions and analyze your performance every week. The excel spreadsheet I have created has 12 sheets that each of them is for one month. Click here to download the file.

On August 18 2009, we had some trades that didn’t work properly. We took a USD-CAD position and then I emailed and asked the subscribers to close it, while we were in a 80 to 90 pips loss.

Today, I want to analyze that trade and see why it didn’t work and what mistakes I made.

The thick magenta line shows our entry and exit on the 4hrs chart. We took a short position at point 1 and exited at point 2.

Why did we go short? The main reason was the strong MACD Divergence I saw on the 4hrs chart. Besides, if you check the previous reports, you will see that it is mentioned that USD-CAD had broken below a strong support line on the weekly and daily charts and has already retested the broken support line. On both daily and weekly charts, a sell signal was formed below the broken support line. So it was the best time to go short, specially when there was a relatively strong MACD Divergence on the 4hrs chart.

I had seen the MACD Divergence from the previous day but I felt that we need to wait a little more for the MACD bars to go down. As you know, I always recommend to trade based on a MACD Divergence if it is confirmed by a support breakout. And there was no support breakout yet, but as the short position was completely confirmed by the daily and weekly charts, I preferred to take it even without having a support breakout. We could take it one candle sooner. We took it right above the Bollinger Middle Band which is not a good idea and this was the first mistake I made in this trade. It bounced up as soon as we took it and it touched the Bollinger Middle Band. Our stop loss was in a good and correct position. When I checked the position three candles later and I saw the big bullish candle (the 2009.08.19 08:00) and its next candle that was also going up strongly, I decided to close the position if the next candle also goes up. When that candle was forming, there was the Crude Inventories news on the way and so I decided to close it before it hits the stop loss.

As soon as we closed it, it went down strongly and broke below the small and newly formed support line on the 4hrs chart. We could take this position after this support breakout but I would not do it because the candle that broke below this support line was a big candle and usually after such big candles we have a strong retesting.

So what was my mistake in this trade? Taking a short position was absolutely correct, because as I said it was 100% confirmed by the daily and weekly candles (see the next screenshots). Taking the position right above the Bollinger Middle Band was my main mistake.

The first mistake was taking the position above the Bollinger Middle Band and the second mistake was closing the position. I should have let it do whatever it wanted to do. It could become so close to the stop loss but it could not hit it. We already had such kind of trades and we had not closed any of them.

Please scroll down and see the daily and weekly charts too.

Daily charts:

The first arrow shows the first sell signal that I always ignore. When candles go up and touch the Bollinger Upper Band for the first time since they have started their upward movement, they form a sell signal. I always ignore that sell signal because it will be followed by a strong upward movement which is in fact the second Elliott wave. Second wave is the most profitable movement. So we should not go short after the first sell signal. We should wait for a buy signal to form after that to go long.

The two small green arrows show the buy signal that we have to take the long position after that. That buy signal usually takes the price up for several candles but this time it couldn’t do that because the broken support line was in front of it and acted as a resistance and didn’t let it go up. The second red arrow shows the candle that formed the sell signal. This candle indicated that the broken support line was acting as a strong resistance (although the previous candle closed above it). So I thought that retesting is finished and failed and it will go down. We went short right when the candle #2 was about to close and as you see it was a good decision because it went down strongly for the next three candles and it may go even lower.

Weekly Chart:

The last candle was forming when we went short. It was not closed yet but it had already touched the broken support line and has been going down. Its upper shadow had been formed and it had a red body. As it went down as soon as it touched the broken support line, I found out that the broken support line was working as a strong resistance. At the same time, MACD was strongly going down.

Most of the banks are closed today and there is no special news release.

Further Reading:

4 Comments:
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Comment by angiepangie

2010-01-18 12:34:42

Very nice article. Thanks for the excel spreadsheet. Yes! I also learn a lot from my losing and winning trades. The trades that I have lost was due to my own mistakes and I have learned from them and will continue to. Fact is we are human and we will make mistakes we just have to learn and continue to grow from them. Vahid you are doing great things. Please continue to bless us with your infinite wisdom.

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Comment by Vahid

2010-01-18 14:35:39

Thank you too Angie

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Comment by Presley

2010-01-19 00:01:32

Sir, you won’t know how much you have blessed us with rich information and higly educative. You have be my Mentor and I have learnt geatly from you. There is no entry I made that was wrongly judged. The only thing I am working on now is to stay with the trade instead fearfully closing them at lost due to initial frightening. And from your experiences, which offcourse we tap from, adequate comfirmation will help to deal with those fluctuations.
Sir Vahid I can not thank you enough. You remain a blessing to us all.

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Comment by Vahid

2010-01-19 21:28:42

Thank you Presley

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