A plan, a journal and a backtest
What a written plan fixes before any money moves
A plan is a short document you write before you open a chart. It answers three questions: which instrument you will watch, what has to happen before you enter, and what has to happen before you leave. For a beginner, one instrument is enough. EUR/USD is a common first choice because its spread is usually narrow, though the spread varies between brokers and over time.
The plan also fixes the size of each trade in naira. If you decide that one trade risks ₦8,000, that number goes in the plan. Then the size is arithmetic, not mood. At 1.0850, one pip on one standard lot of EUR/USD is 10 units of the quote currency, which is 10 dollars. If the rate is ₦1,600 to the dollar, one pip is ₦16,000, and the rate varies between brokers and over time.
Write the exit rule at the same time as the entry rule. A plan that says when to buy but not when to sell is half a plan. Keep the whole document under one page. If it runs longer, the rule is probably too complicated to follow when the price is moving.
A plan costs nothing to write. It costs only the time to think before the money is at risk. That is the cheapest hour in the whole process.
What the journal records that memory does not
The journal is the record of what actually happened, written the same day. For each trade, note the entry price, the exit price, the size, and the reason in one sentence. If the reason cannot fit in one sentence, the trade was not part of the plan. Note the costs too: spread, commission and any conversion charge your broker applies.
The journal separates the result from the decision. A trade can lose money and still follow the plan, and a trade can make money and still break it. Only the journal shows which happened. Read it once a week, not once a day, so that one bad afternoon does not change a rule that works over fifty trades.
A worked example from the page: 20 wins averaging ₦16,000 and 30 losses averaging ₦8,000. Twenty times ₦16,000 is ₦320,000. Thirty times ₦8,000 is ₦240,000. The net before costs is ₦80,000. Costs come on top and can turn a small net result into a loss.
The journal is also where costs become visible. Your broker may round prices, charge a spread or commission, and quote a different exchange rate for NGN. Those figures belong in the journal beside the trade, not in a separate folder you never open.
What a backtest shows before the rule is used
A backtest applies a written rule to old prices and records what would have happened. It does not predict the future. It shows whether the rule has been described clearly enough to follow, and whether the arithmetic of wins and losses leaves anything after costs.
Take the same rule you wrote in the plan and step through old EUR/USD prices, one candle at a time. Record each entry and exit as if it were real, including the spread your broker charges. If the rule gives different answers on two readings of the same chart, the rule is not yet written clearly.
The backtest and the journal use the same columns: entry, exit, size, reason, cost. That way the old test and the live record can be compared directly. A rule that only works when you are watching the screen is not a rule; it is a habit.
A backtest costs time and nothing else. It is the last free check before real money is used. If the rule fails on old prices, it has failed for free.
What 50 trades on one rule showed in the journal
| Step | Amount | Note |
|---|---|---|
| Trades taken | 50 | Every trade followed the same written rule. |
| Wins | 20 | 20 trades closed with a profit. |
| Losses | 30 | 30 trades closed at a loss. |
| Win rate | 40 per cent | 20 wins divided by 50 trades. |
| Average win | ₦16,000 | Total profit on winning trades divided by 20. |
| Average loss | ₦8,000 | Total loss on losing trades divided by 30. |
| Total from wins | ₦320,000 | 20 wins multiplied by ₦16,000. |
| Total from losses | ₦240,000 | 30 losses multiplied by ₦8,000. |
| Net result before costs | ₦80,000 | ₦320,000 minus ₦240,000. |
Your broker may round prices, charge a spread or commission, and quote a different exchange rate for NGN. Those costs come on top and can turn a small net result into a loss.
Doing it once, step by step
These steps set up the three written artefacts in order, starting with the plan and ending with the first live entry.
- 01
Write the plan on one page
State the instrument, the entry condition, the exit condition and the naira risk per trade. Use one instrument only, such as EUR/USD. Keep every sentence short enough to read while the price is moving.
- 02
Fix the position size in naira
Decide the money at risk per trade before you look at the chart. Convert that amount into lots using the pip value for the instrument. At 1.0850, one pip on one standard lot is 10 dollars, and the naira value depends on the exchange rate your broker quotes.
- 03
Backtest the rule on old prices
Step through past EUR/USD prices and record every trade the rule would have taken. Include the spread and any commission in each record. If two readings of the same chart give different trades, rewrite the rule.
- 04
Open the journal with the same columns
Use entry, exit, size, reason and cost as the column headings. Write each live trade on the same day it is closed. Add the broker's conversion rate for NGN where it applies.
- 05
Read the journal once a week
Count the wins and losses and average each group. Compare the net figure with the backtest. Look for trades whose reason cannot be stated in one sentence.
- 06
Change one thing at a time
If the rule needs adjustment, change one condition and backtest again. Keep the old journal page so the effect of the change can be seen. Costs stay in every calculation.
The mistake most people make here
The common mistake is to keep no journal at all, or to write only the wins. Without a record you cannot see that 30 losses of ₦8,000 can still leave ₦80,000 before costs. Write every trade down the same day: entry, exit, size, and the reason. Then read the journal once a week. If you cannot explain a trade in one sentence, it was not part of a plan.Check yourself
If 20 wins average ₦16,000 and 30 losses average ₦8,000, what is the net result before costs?
20 multiplied by ₦16,000 is ₦320,000. 30 multiplied by ₦8,000 is ₦240,000. ₦320,000 minus ₦240,000 is ₦80,000.
One pip on one standard lot of EUR/USD is 10 units of the quote currency. At 1.0850, what is one pip worth in naira if the rate is ₦1,600 to the dollar?
10 units of the quote currency is 10 dollars. 10 multiplied by ₦1,600 is ₦16,000. The rate varies between brokers and over time, so this figure changes.
Questions that come up next
How long should I backtest a rule before I trust it?
There is no fixed number, but a rule tested on very few trades tells you almost nothing. The worked example on this page uses 50 trades, which is a common starting point for a beginner. Test the rule on old EUR/USD prices over a period that includes both quiet and busy weeks. If the rule only works in one kind of week, you have not tested it yet.
Does a backtest cost me anything to run?
No money changes hands, because you are working on old prices rather than live ones. The cost is time: recording 50 trades by hand takes hours. Some platforms let you replay old prices, and some charge for that feature, so check before you rely on it. The result of a backtest is a number you wrote down, not money in an account.
What should I write in the journal when I close a trade at a loss?
Write the same four things you write for a win: entry price, exit price, size in naira, and the reason in one sentence. Then add the costs your broker applied, because those are part of the result. A loss that followed the plan is a different event from a loss that broke it, and the journal is the only place that difference is visible. Do not leave the entry out because the trade went badly.
Can I keep the plan and the journal in my head?
Memory is unreliable in exactly the way that matters here. It tends to remember wins and forget losses, which makes a losing rule look like a winning one. It also forgets the reason for a trade within days. Writing the plan and the journal takes minutes and costs nothing. The page already makes this point, so the practical answer is simply that a written record is the only one you can read back.
What happens if my broker's costs are higher than the ones in my backtest?
Then the backtest result is too optimistic, and the gap can be large. Spread, commission and the NGN conversion rate all vary between brokers and over time, so no single figure is correct for everyone. Put the actual costs from your own account into the journal beside each trade. A rule that only works when costs are zero is not a rule you can use.
How often should I change the plan after reading the journal?
Read the journal once a week, but change the plan far less often than that. A rule judged on one week of trades will be changed constantly and tested on nothing. Give a rule enough trades to show a pattern before you edit it. When you do change it, write the date and the reason in the plan itself.
The words used on this page
- backtest
- A test of a trading rule on old prices, done before any money is at risk. You apply the rule to past EUR/USD data and record what it would have done. It costs time rather than money, and the result is only as good as the costs you include.
- journal
- The written record of every trade you actually took, filled in the same day. It holds the entry, the exit, the size and the reason, plus the costs. It is the only reliable way to compare what you planned with what you did.
- spread
- The gap between the price at which you can buy and the price at which you can sell. It is a cost you pay on entering and on leaving a trade. It varies between brokers and over time, so the figure in any example is only an example.
- commission
- A separate charge some brokers make for handling a trade, on top of the spread. Not every broker charges one, and the amount varies. It belongs in the journal beside the trade it applies to.
- standard lot
- A fixed trade size used in the examples on this page. One pip on one standard lot of EUR/USD is 10 units of the quote currency, which is 10 dollars. At a rate of ₦1,600 to the dollar that is ₦16,000, and the rate varies between brokers and over time.
- NGN conversion
- The rate your broker uses to turn dollars into naira, or naira into dollars, for your account. It is not always the rate you see elsewhere. Because it varies, the naira value of a pip or a loss changes with it.
What to take away
- A plan, a journal and a backtest cost time and no money, which makes them the cheapest part of trading.
- The plan fixes the instrument, the entry, the exit and the size in naira before any money moves.
- The journal records what happened, including costs, and separates a losing trade that followed the plan from one that did not.
- A backtest shows what the rule would have done on old prices, so a bad rule is found before it is paid for.