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Building & Backtesting Your Trading Plan—By Peni2DollarzFx

Having a clear plan is like having a roadmap: it tells you exactly where to go and how to get there. For new traders, this means defining your rules, checking your work, and testing your ideas before risking real money. Let’s break it down into three easy steps—with concrete examples every step of the way.

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1. Write Clear Entry & Exit Rules

Why it matters: If you know exactly when to enter and when to exit, you avoid second-guessing and guesswork.

How to do it: Specify three things for each trade:

  1. Entry Trigger: What exactly happens to make you buy or sell?

  2. Entry Price: At what price will you place your order?

  3. Exit Rules: Where will you take profit, and where will you cut losses?

Example: Simple RSI Pullback on EUR/USD

  • Trigger: RSI (14) dips below 30 (oversold) and then rises back above 30.

  • Entry Price: Market order as soon as RSI closes above 30.

  • Stop-Loss: 15 pips below entry.

  • Take-Profit: 30 pips above entry (2× the risk).

Scenario:

·       EUR/USD is at 1.1100 and RSI hits 28.

·       Next 15-minute bar closes, RSI climbs to 31.

·       You buy at 1.1105.

·       Stop-loss set at 1.1090.

·       Target set at 1.1135.

This rule is so specific that there’s no “maybe”—either the RSI crosses or it doesn’t.

2. Use a Simple Pre-Trade Checklist

Why it matters: A checklist keeps you disciplined. It stops you from trading when conditions aren’t ideal.

Your 5-Point Checklist:

  1. Signal Clear? (Yes/No)

  2. Correct Timeframe? (e.g. chart matches rule)

  3. Risk ≤ 1%? (Check position size)

  4. No Big News Soon? (Avoid announcements)

  5. Trend Alignment? (Trade with the main trend)

Before trading your RSI pullback:

1.     Signal clear? ✔️

2.     15-minute chart? ✔️

3.     Risk is 0.8% of account? ✔️

4.     No ECB news in next hour? ✔️

5.     Overall uptrend on 1-hour chart? ✔️

All green lights? Go for it. Any “No”? Step aside.

3. Backtest on Historical Data

Why it matters: You want proof that your rule would have made money in the past.

Easy Backtest Steps:

  1. Get Data: Grab past price bars (e.g. 6 months of 15-minute EUR/USD data).

  2. Apply Your Rule: Manually scroll or use simple software to mark where your trigger happened.

  3. Record Trades: Note entry, exit, and profit/loss each time.

  4. Calculate Results: Count how many wins vs. losses and the average win/loss.

Example Backtest Snapshot (First 5 Trades)

#

Date & Time

Entry

Exit

P/L (pips)

1

Jan 3, 09:15

1.1105

1.1135

+30

2

Jan 4, 11:45

1.1120

1.1105

–15

3

Jan 5, 14:30

1.1085

1.1115

+30

4

Jan 6, 10:00

1.1090

1.1075

–15

5

Jan 7, 13:45

1.1130

1.1160

+30


 

·       Win Rate: 3 wins out of 5 trades = 60%

·       Average Win: 30 pips

·       Average Loss: 15 pips

With these numbers, each trade on average makes:

(0.6 × 30) – (0.4 × 15) = 18 – 6 = +12 pips per trade

Positive expectancy! That means, over many trades, this rule should earn you pips.

Putting It All Together

  1. Define Your Rule: Be specific—signal, entry price, stop, and target.

  2. Check Before Trading: Use the 5-point checklist every time.

  3. Backtest: Verify that your rule makes money historically.

With these three simple steps, you turn a hunch into a tested plan—and trade with confidence instead of doubt. Ready to build yours? Visit Peni2DollarzFx for ready-made templates, video walk-throughs, and community support to get you started today!

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