A plan, a journal and a backtest
What you learn in 3 minutesA plan, a journal and a backtest are three written artefacts that sit before and after every trade. A plan says what you will do, a journal says what you did, and a backtest says what your rule would have done before you used it with money. On AUD/USD around 0.6640, one pip on one standard lot is 10 units of the quote currency, so a 20 pip move on 0.10 lots is 20 x 1 = A$20. Written records turn that arithmetic into evidence you can check.
Fifty trades under one rule
| Step | Amount | Note |
|---|---|---|
| Trades recorded | 50 | one rule, one instrument, one period |
| Wins | 18 | counted from the journal entries |
| Losses | 32 | counted from the journal entries |
| Average win | A$40 | 20 pips on 0.20 lots at 10 units per pip per standard lot, so 20 x 2 = A$40 |
| Average loss | A$20 | 10 pips on 0.20 lots, so 10 x 2 = A$20 |
| Gross from wins | A$720 | 18 x A$40 |
| Gross from losses | A$640 | 32 x A$20 |
| Net before costs | A$80 | A$720 minus A$640 |
The broker may round the pip value, charge a spread or commission on top, and quote a different conversion rate for the quote currency. Costs vary between brokers, so the net figure here is not the amount that would reach an account.
The mistake people make here
The common mistake is to keep a journal that records only the result, such as a profit or a loss, and nothing about the rule that produced it. Then fifty entries cannot answer the only question that matters: did the rule work, or did one large win hide many small losses. Write down the entry, the exit, the size and the reason before the trade, and the outcome after it. If the journal cannot be turned into the table above, it is a diary, not a record.Check yourself
A journal shows 50 trades: 18 wins at an average of A$40 and 32 losses at an average of A$20. What is the net before costs?
18 x A$40 = A$720. 32 x A$20 = A$640. A$720 - A$640 = A$80 net before costs.
The same rule is tested on AUD/USD at 0.6640 with 0.10 lots and a 15 pip stop. What is the loss in A$ if the stop is hit?
One pip on one standard lot is 10 units of the quote currency, so 0.10 lots gives 1 unit per pip. 15 pips x 1 = A$15, before any spread or commission.