You may notice in the above diagram a cool looking traffic light. This is the final stage between your "ideas" and a "live trade". It looks like this on your trading journal excel file:.
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Forex Pair - This is combination of 1 strong currency, and 1 weak currency creating a currency pairing. Relative Score - This is derived from comparing the interest rate differentials, GDP gross domestic product differentials, imports and exports analysis and stock market returns. This is something that you can learn how to create in the currency trading masterclass. If it agrees with the economic analysis, i. TA 1,2,3 etc Generally these can be technical analysis features you consider 'useful' to supplement your trading decision. The way these traffic lights work is as follows:.
My Trading Journal (Excel Spreadsheet) -
And if all is satisfied, you are best prepared to enter a real position on the markets. You've conducted a proper research on the economies, funnelled your ideas into tradable currency pairs and filtered them by checking the COT report and technicals. And this is where the fun really begins The second spreadsheet in the excel file is the Trade log. This is where you keep track of each trade individually, and the returns you make on them. It can be used in stocks or currencies, to determine how much RISK you should be taking on your trades.
The luxury of institutional traders, working in a fund, is they have a manager who tells them when they can increase or decrease their trade sizes their risk. As a retail trader, you don't have a boss to tell you when to increase your risk, or decrease it. Not to worry though, as it's not that difficult to work out, and I've made a simple template for you to follow. Right now, I want you to imagine you've entered over 26 trades, applying proper economic research and filtering your ideas correctly.
It's now time to measure how good you are. As you don't have a boss, this must be done yourself objectively to get a realistic understanding.
Journaling Approaches From expert Analysts
The way we do this is by using a formula, directly from probability theory known as the Kelly Criterion. As a trader, you want to be invest more into yourself when you're winning, and do the opposite when losing. The best way to gauge how to do this is by looking at historical trades you've entered, and use the Kelly criterion formula. A very powerful formula:. The Kelly criterion first came around 90's, designed around horse betting.
Gamblers actually used this to add a bit of 'logic' to their gambling habits Gamblers and traders are two different species in my eyes! Traders have now adapted this to be used for managing their risk, and it works extremely well once you've built up a list of historical trades. Of course, you can't use the Kelly criterion right away, as you won't have any positions when you start out - but as you become more experienced it is imperative that it is used!
The first step is to populate your historical trades:. If we break this down simply there are 4 columns:. Once you've populated this section, the second step is done for you. The formulas in the template will automatically do all the hard work for you and produce your Kelly criterion:. And in this example of completely made up numbers the Kelly criterion is telling us that the optimal position size would be Take this with caution.
This doesn't mean you should risk that EXACT amount, but it's more of a guide that you can increase your risk slightly from it's current level.
For example, if you're currently risking 0. The third and final spreadsheet in the trading journal excel file is the performance dashboard. This is where you track the performance of all your trading activity.
Forex Trading Journal Spreadsheet
This is super important if you want to increase how profitable you are as a trader! This dashboard will tell you where you strengths and weaknesses lie as a trader - which then helps you make better decisions as a trader. The performance dashboard will automatically tell you the following with in-build formulas your:. In order to get the results for these all you have to input is these 3 things :. Now you're probably wondering, what do all of these mean Marcus?! Very good question - and I will explain the most important performance metrics so you know exactly how to draw effective conclusions, and improve your trading from them!
The Sharpe ratio looks at our annualised return in comparison to the risk-free rate as a factor of our standard deviation. Or in simpler terms: Sharpe ratio tells us our return on capital compared to the risk we took to get that return. The Sharpe ratio originally was invented by William F.
Sharpe, who is an American economist Nobel prize winner for Economic Sciences and is calculated as follows:. The formula can be split into two steps:. Take the 'risk free rate' away from the return of your portfolio.
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Divide your answer by the volatility of your portfolio standard deviation. The risk free rate is an asset that we're pretty much guaranteed to get the return on. This 'guarantee' doesn't really exist in the world, but the closest thing to it is the U. Generally speaking a Sharpe ratio above 1 means you're doing good. If it's above 2 you're doing pretty great and actually outperforming many other traders out there!
The reason why a ratio greater than 1 is considered good is because this essentially means your portfolio returns are greater than the volatility of the portfolio. It means your approach to the market will be profitable over the long-run. Sharpe ratio is very useful for telling you if the risk you're taking is sensible in terms of the return you're getting.
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It tells you if you're a gambler or a trader! The Sortino ratio, is a variation of the Sharpe ratio, which I'd argue is slightly more accurate. It's different as it just looks at the 'negative' volatility.
The idea behind just the negative volatility, is that its the only volatility that counts as risk, is the one that would lose you money It's the same as the Sharpe ratio, just replace the deviation number, with the downside deviation. The Sortino is a very useful way to gauge your return on investment given how much 'bad' or 'negative' risk you're taking. How can you improve on a system you only know little about? You can also use these to track the free Forex trading signals I publish every single week.
Anyhow, you probably already know that keeping a close watch on trading results is something that I firmly believe in. Without doing so, you are not putting yourself in the best position to find success in Forex, Futures, or any other market. Use a trading log and with these free ones, there is no excuse. Detailed profile at my About page. Ioannis Rigopoulos. Thursday, 14 January The reason I create a different spreadsheet for Currency trading lies partly on the following differences between Stock and Currency trading