A plan, a journal and a backtest
The lesson uses USD/INR near 83.2500, where one pip on one standard lot is ₹10, and shows how fifty trades turn into a single number you can read.
Purpose of writing the plan before the market opens
A plan written before the market opens is a decision made in calm conditions. On a Monday morning in Mumbai, a person may decide that USD/INR near 83.2500 is worth watching because the price has held a range for three sessions. That decision is the plan. It names the pair, the level, the size and the exit before any money is at risk.
The plan does not need to be long. One page is enough. It answers four questions: which instrument, what price would make the idea valid, how much is risked, and what would prove the idea wrong. If any answer is missing, the plan is not finished. A plan with a missing exit is not a plan; it is a hope.
Writing the plan first removes the need to decide while the price is moving. A moving price creates pressure, and pressure changes judgement. The written page holds the earlier judgement in place. When the market opens, the reader compares the price with the page instead of inventing a reason to act.
The plan also sets the size. On USD/INR, one pip on one standard lot is ₹10. If the plan allows a risk of ₹500, that is 50 pips. The number is chosen before the trade, not after a loss. Size chosen in advance is the only size that can be checked against a rule.
What the journal records that memory cannot
A journal is one line for every trade actually taken. The line holds the date, the direction, the entry, the exit, the size and the result in rupees. It also holds one short note on why the trade was taken. That note must match the plan. If it does not match, the journal has found a fault in the process.
Memory is a poor record because it edits. A person remembers the trade that worked and forgets the three that did not. A written line cannot be edited in the same way. After fifty lines, the pattern of behaviour is visible. The pattern, not the single trade, is what the journal is for.
The journal is written at the time of the trade, not at the end of the month. A line written later is a story. A line written now is a record. The difference matters because a story can be shaped to fit what the writer wishes were true. A record cannot.
Costs belong in the journal. The broker may round the fill price, charge a spread and add commission, so the real figure can be lower than the raw pip count suggests. These costs vary between brokers. Recording them keeps the journal honest and shows the gap between the rule and the account.
Reading a backtest as a count, not a forecast
A backtest runs one written rule over old prices. The rule must be one sentence, fixed before the test begins. If the rule is changed while testing, the count restarts from zero. A rule changed to fit the past will always look better than it was, because the past is already known.
Suppose the 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. 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. The number is a count of what happened, not a promise of what will happen.
The same arithmetic works at smaller size. One pip on one standard lot of USD/INR is ₹10. On 0.10 lots, one pip is ₹10 x 0.10 = ₹1. The shape of the result does not change, only its scale. A reader can test a rule at a size that risks very little.
A backtest cannot include every real condition. The broker may round the fill price, charge a spread and add commission, so the real figure can be lower. Costs vary between brokers. A backtest that ignores them is a rough count, and should be read as one.
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.
Doing it once, step by step
The reader will write one rule, run it over fifty old prices, and record the count in a single line. The order matters: rule first, then test, then journal.
- 01
Write the rule in one sentence
State the entry, the exit and the size in one sentence. For example: buy USD/INR at 83.2500, exit at 25 pips profit or 15 pips loss, on one standard lot. Do not add conditions while testing. If the sentence changes, the count restarts from zero.
- 02
Choose a fixed number of trades
Pick fifty trades before starting. A fixed count stops the test when the result is good, which would flatter the rule. Fifty is enough to show a pattern and short enough to finish. Record the count as you go.
- 03
Convert pips to rupees
One pip on one standard lot of USD/INR is ₹10. Multiply the pip result by ₹10 for each trade. On 0.10 lots, one pip is ₹1. Keep the same size for every trade in the test so the numbers can be added.
- 04
Add the wins and losses separately
Add all winning pips, then all losing pips. With 18 wins of 25 pips, the wins are 18 x 25 x ₹10 = ₹4,500. With 32 losses of 15 pips, the losses are 32 x 15 x ₹10 = ₹4,800. The net is ₹4,500 minus ₹4,800 = minus ₹300.
- 05
Note the costs the count leaves out
Write one line saying the broker may round the fill price, charge a spread and add commission. These costs vary between brokers, so the real figure can be lower. The note keeps the count from being read as a promise.
- 06
Record the next real trade in the journal
Use one line for the trade: date, direction, entry, exit, size and result in rupees. Add one short note on why the trade was taken. Check that the note matches the written plan. If it does not, the journal has found a fault worth fixing.
The mistake most 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.
Questions that come up next
How long should the plan be before the market opens
One page is enough. It answers four things: which instrument, what price makes the idea valid, how much is risked, and what proves the idea wrong. If any of the four is missing, the plan is not finished. A plan with no exit is not a plan.
What happens if the journal line does not match the plan
That mismatch is useful information. It shows the trade was taken for a reason the plan did not contain. Write the real reason in the note, even when it is uncomfortable. After fifty lines, the pattern of these notes is what the journal is for.
Can a backtest be trusted as a forecast
No. A backtest shows what one rule would have done on old prices. It cannot know the spread, the fill or the news of a future day. Use it to check whether the rule is clear, not to predict a result. Costs vary between brokers, so a backtest run without them reads too high.
Why does the method say to start the count again from zero after a change
Changing the rule mid-test mixes two different rules into one number. The result then belongs to neither rule. Start again from zero so every trade in the count was judged by the same sentence. The number is smaller, but it is honest.
What records must a journal line hold
The date, the direction, the entry, the exit, the size in lots and the result in rupees. Add one short note on why the trade was taken. The note must match the plan. Write the line when the trade is taken, not at the end of the month.
Does a plan replace the need to watch the market
No. The plan holds the decision made in calm conditions, and the reader still compares the live price with the page. What changes is where the decision is made. The page carries the earlier judgement, so the moving price does not rewrite it.
The words used on this page
- plan
- One page written before the market opens. It names the instrument, the level, the size and the exit. A plan with a missing exit is not a plan.
- journal
- One line for every trade actually taken, written at the time. It holds the date, direction, entry, exit, size and result, plus a short note on the reason. A line written later is a story, not a record.
- backtest
- The same rule run over old prices to see what it would have done before any money moved. It checks whether the rule is clear. It does not predict a future result.
- pip
- A small step in a quoted price. On one standard lot of USD/INR, one pip is ₹10. On 0.10 lots, one pip is ₹1.
- standard lot
- A fixed trade size used in the examples on this page. One pip on one standard lot of USD/INR is ₹10. Smaller sizes carry proportionally smaller pip values.
- spread
- The gap between the price at which a position can be bought and the price at which it can be sold. It is a cost of each trade. Spreads vary between brokers.
What to take away
- Write the rule in one sentence before testing it, and do not edit that sentence while the test runs.
- A journal line is written at the time of the trade, so it stays a record rather than a story.
- A backtest shows what the rule would have done, not what it will do.
- The broker may round the fill, charge a spread and add commission, so the real figure can be lower than the raw pip count, and costs vary between brokers.