A plan, a journal and a backtest
What you learn in 3 minutesThis lesson is about three written things: a plan, a journal and a backtest. They cost you nothing but time, and they are the cheapest part of trading. Before you risk one naira, you can write down what you will do, record what you did, and test the rule on old prices. The worked example uses 50 trades on EUR/USD to show what a journal can tell you.
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.
The mistake 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.