A plan, a journal and a backtest
What you learn in 3 minutesA plan is one page that says what you will do before the market opens. A journal is one line for every trade you actually took. A backtest is the same rule run over old prices, so you can see what it would have done before any money moved.
Fifty trades, one rule, one number
| Step | Amount | Note |
|---|---|---|
| Rule tested | Enter at 83.2500, stop 20 pips away, target 30 pips away | Written down before any trade was taken |
| Trades in the test | 50 | Counted from the journal, one line each |
| Wins | 21 | Trades that reached the 30 pip target |
| Losses | 29 | Trades that reached the 20 pip stop |
| Money won | ₹6,300 | 21 x 30 pips x ₹10 per pip |
| Money lost | ₹5,800 | 29 x 20 pips x ₹10 per pip |
| Net result | ₹500 | ₹6,300 minus ₹5,800 |
The broker may round the fill price, charge a spread and add commission, so the real figure can be lower. Costs vary between brokers.
The mistake people make here
The common mistake is to write the plan after the trade, so the journal becomes a story rather than a record. Then the backtest is run on a rule that was quietly changed to fit the past, and the number looks better than it was. Write the rule first, in one sentence, and do not edit it while testing. If you change it, start the count again from zero.Check yourself
A rule wins 18 times out of 50. Each win is 25 pips and each loss is 15 pips, on one standard lot of USD/INR. What is the net result in ₹?
Wins: 18 x 25 x ₹10 = ₹4,500. Losses: 32 x 15 x ₹10 = ₹4,800. Net result: ₹4,500 minus ₹4,800 = minus ₹300.
One pip on one standard lot of USD/INR is ₹10. What is one pip worth on 0.10 lots?
₹10 x 0.10 = ₹1 per pip.