A plan, a journal and a backtest
What the chart shows before you write a single rule
Open a daily chart of EUR/USD around 1.0850. You see a line that moves left to right. Each point on that line is a price where buyers and sellers met. The chart does not tell you what will happen next. It only shows what already happened.
A plan starts from this chart. You pick one shape you can describe in words. For example: price closes above the highest point of the last twenty days. That is an entry rule. It is written before you look at any live price.
The chart also shows the distance between the highest and lowest price of a day. That distance is not a promise. It is a record. Your plan uses that record to set a maximum loss in pesos, not in hope.
How a journal turns a chart into a record of decisions
After you take a trade, the chart no longer matters for learning. What matters is what you wrote. A journal has one row per trade. Each row shows the date, the entry price, the exit price, the number of pips, and the peso result after costs.
The chart can be redrawn later. A journal cannot. If you write the entry rule after the trade, the row is fiction. The rule must be written before the entry price is known.
A journal also records the trades you did not take. If your rule said enter but you did not, write that down. The gap between the rule and your action is the most useful number in the journal.
What a backtest measures and what it leaves out
A backtest takes one fixed rule and applies it to old chart data. You do not guess. You count. For every signal, you record the entry, the exit, and the pips. Then you add them up.
The result is a number of pips before costs. It is not a peso result until you convert it. One pip on EUR/USD is 10 units of the quote currency per standard lot. That unit is converted into pesos at the rate on the day. The rate moves, so the peso value moves.
A backtest cannot include the spread your broker will charge, the commission, or the swap for holding overnight. Those vary between brokers. They reduce the result. A backtest that ignores them is a first filter, not a final answer.
50 trades, one rule, one journal
| Step | Amount | Note |
|---|---|---|
| Trades recorded | 50 | every trade taken under the same written rule |
| Trades that gained | 28 | counted from the journal, not estimated |
| Trades that lost | 22 | 50 minus 28 |
| Average gain per winning trade | 12 pips | sum of the 28 gains divided by 28 |
| Average loss per losing trade | 8 pips | sum of the 22 losses divided by 22 |
| Gross pips from winners | 336 pips | 28 x 12 pips |
| Gross pips from losers | 176 pips | 22 x 8 pips |
| Net pips before costs | 160 pips | 336 minus 176 |
| Value of one pip on 0.10 lots | ₱58.53 | one standard lot is 10 units of the quote currency, so 0.10 lots is 1 unit; converted at about ₱58.53 per unit |
| Net result before costs | ₱9,364.80 | 160 pips x ₱58.53 |
The broker may add a spread on every entry and exit, and may charge a commission or a swap for positions held overnight. Those costs are not in the figures above and they reduce the result. The exchange rate used to convert the quote currency into pesos also moves, so the peso value of one pip changes from day to day.
Doing it once, step by step
You will write three things in order: a plan, a journal row, and a backtest count. Do this once on paper or in a spreadsheet before you place any trade.
- 01
Write the entry rule in one sentence
Open a daily EUR/USD chart. Find a shape you can describe without looking at the future. Write it as: enter when price closes above the highest point of the last twenty days. Do not add conditions you cannot see on the chart.
- 02
Write the exit rule and the maximum loss in pesos
Decide where you will exit if the price moves against you. Convert that distance into pips. Multiply by the peso value of one pip for your lot size. That number is your maximum loss. Write it next to the entry rule.
- 03
Record every trade in a journal row
After the trade closes, write the date, entry, exit, pips, and peso result after costs. Include the trades you regret. A journal with only winners cannot show whether the rule works.
- 04
Backtest the same rule on old data
Take the last 50 signals from the chart. For each one, record the entry and exit as if you had taken it. Add the pips. Subtract nothing yet. This is the raw count.
- 05
Subtract the costs you know
Ask your broker for the spread on EUR/USD, the commission per lot, and the swap for overnight positions. These vary between brokers. Subtract them from the raw pip count. The result is smaller.
- 06
Convert pips to pesos at today's rate
Multiply the net pips by the peso value of one pip. That value changes with the exchange rate. Write the date next to the peso figure. Do not treat it as a fixed amount.
The mistake most people make here
The common mistake is to write the plan after the trade, not before it. People look at a chart, take a trade, and then invent a reason that fits what happened. That is not a plan and it is not a journal. Write the entry rule, the exit rule and the maximum loss in pesos before you place anything. Then record every trade, including the ones you would rather forget. A journal with only the good trades tells you nothing about the rule.Check yourself
A journal shows 40 trades: 24 winners averaging 10 pips and 16 losers averaging 6 pips. What is the net result in pips before costs?
Winners give 24 x 10 = 240 pips. Losers give 16 x 6 = 96 pips. Net is 240 minus 96 = 144 pips.
Using the same journal, what is the net result in pesos on 0.10 lots if one pip is worth ₱58.53?
144 pips x ₱58.53 = ₱8,428.32, before spread, commission or swap.
Why does the same 160 pips in the worked example not always equal ₱9,364.80?
Because one pip is 10 units of the quote currency on one standard lot, and that unit is converted into pesos at the current rate. If the rate changes, the peso value of the same 160 pips changes too.
Questions that come up next
How many trades do I need before a journal tells me anything?
There is no fixed number that works for everyone. A small sample, say ten trades, can be moved by one unusually large win or loss. The worked example on this page uses 40 trades, and even that is a thin base. A longer record gives a steadier picture of whether the rule is repeatable. Write every trade from the first one, because the early rows are still part of the record.
What if my backtest result is positive but my journal is negative?
The two measure different things. A backtest applies one fixed rule to old data with no spread, commission or swap. A journal records what you actually did, including the trades where you ignored the rule. Look for the gap between them. If the rule said enter and you did not, that gap is the first thing to examine. The difference is often action, not the rule.
Should I convert every pip result into pesos in the journal?
Yes, if you want to compare trades taken on different days. One pip on EUR/USD is worth a peso amount that changes with the exchange rate. A pip result from January and a pip result from June are not the same peso amount. Writing both columns, pips and pesos, keeps the record honest. The peso column is the one that matches your account.
Where do the costs go in the journal?
Each row should show the pip result before costs and the peso result after costs. The difference between those two columns is the cost of that trade. Spread is charged on entry and exit, commission depends on the broker, and swap applies only if you hold overnight. Those charges vary between brokers, so the journal must use your own figures.
Is a plan allowed to change after I start trading?
A plan can change, but only between trades and in writing. If you change the entry rule in the middle of an open trade, the journal row no longer matches the plan. Write the new rule, date it, and start counting again from that point. Mixing two rules in one set of rows makes the result unreadable. The point of the plan is that it was written before the outcome was known.
Do I need a broker before I can write a plan or a backtest?
No. A plan is a sentence and a backtest is a count, both done on paper or in a spreadsheet. You need old chart data, which many charting tools provide free. A broker only becomes relevant when you place a live trade. In the Philippines, firms offering these products are registered with the SEC Philippines, and you can check a name there before opening anything.
The words used on this page
- pip
- The smallest common step in a currency price. On EUR/USD around 1.0850, one pip is the fourth decimal place, so a move from 1.0850 to 1.0851 is one pip. The peso value of one pip depends on your lot size and the current exchange rate.
- spread
- The gap between the price at which you can buy and the price at which you can sell. It is charged on entry and again on exit. It varies between brokers and is not included in a pip count from a chart.
- swap
- A charge or credit applied when you hold a position overnight. It depends on the broker and the pair. A backtest that closes every trade the same day does not include it.
- backtest
- Applying one fixed rule to old chart data and counting the result. It produces a number of pips before costs. It is a first filter, not a forecast.
- standard lot
- A fixed position size used in the examples on this page. On EUR/USD, one pip on a standard lot is 10 units of the quote currency. That unit is converted into pesos at the rate on the day.
- maximum loss
- The largest peso amount you have decided to lose on one trade, written before you enter. It is a number in your plan, not a feeling during the trade. If the market reaches it, the trade closes.
What to take away
- A plan is written before the entry price is known, a journal records what you actually did, and a backtest counts what one fixed rule would have done.
- Every pip figure needs a peso figure beside it, and the peso value of one pip changes with the exchange rate.
- Spread, commission and swap reduce the result and vary between brokers, so a backtest that ignores them is a first filter only.
- The most useful row in a journal is the trade your rule told you to take and you did not.