The seven steps in the correct order
Most guides list the steps without noting that their order is half the skill. The most common error is deciding size first ("I'll open 0.10 lots") then looking for somewhere to put the stop — an entirely inverted equation:
| # | Step | Where the decision comes from |
|---|---|---|
| 1 | Choose the pair | One pair whose behaviour you know, not whatever is moving today |
| 2 | Define the likely direction | Price structure and trend on a higher timeframe |
| 3 | Set the stop level | The chart — beyond a level that invalidates the idea |
| 4 | Calculate position size | Risk percentage ÷ stop distance |
| 5 | Set the target | A real price level and a sensible reward ratio |
| 6 | Execute | Market or pending order per your plan |
| 7 | Journal and review | Reason for entry and the outcome, in writing |
Note steps 3 and 4: the stop comes from the chart, and the size comes from the stop. Reversing them sets your risk by how much you want to earn rather than by what the market is telling you.
A complete worked example on EUR/USD
A $3,000 account risking 1% per trade. EUR/USD at 1.1000, with clear support at 1.0960:
| Element | Value | How it was set |
|---|---|---|
| Permitted risk | $30 | 3,000 × 1% |
| Entry | 1.1000 | After the bounce is confirmed |
| Stop-loss | 1.0955 | Five pips below support |
| Stop distance | 45 pips | 1.1000 − 1.0955 |
| Required pip value | $0.67 | 30 ÷ 45 |
| Position size | 0.067 lots ≈ 0.07 | 0.67 ÷ 10 (pip value per full lot) |
| Target | 1.1090 | 90 pips — a 2:1 reward-to-risk |
Note that size is an output, not a choice: the stop distance dictated 0.07 lots. Had support been further away (a 90-pip stop), size would halve automatically and the maximum loss would still be $30. Do this step with the position size calculator rather than by hand — it turns the equation above into a single number before you enter.
When not to open the trade
The most important decision in trading is often the decision not to enter. Stop yourself if any of the following applies:
- You cannot find a logical stop level — if the only possible stop is very far away, the idea itself is unclear.
- The target does not justify the risk — a reward smaller than your risk requires a very high win rate to compensate.
- High-impact news is minutes away — the spread widens and slippage rises.
- The calculated size is below the available minimum — that means your account is small for this particular trade, not that you may override the rule.
- You want to recover a previous loss — the worst possible reason to open a position.
- You cannot monitor the trade over the timeframe it requires.
The opposite error is exiting a correct trade early. Define your exit rules before entering and hold to them; details in risk management and order types.
After the close: the step everyone skips
A trade ends not when it closes but when it is recorded. Log just six fields per trade: the pair, the reason for entry, stop and target levels, size, the result in pips and dollars, and one note on what you would do differently.
The benefit is diagnostic rather than documentary: after thirty trades you can answer questions memory cannot — do your losses come from one particular pair? One hour of day? From exceeding your set size? From exiting early? Without a journal every review becomes an impression, and most impressions formed after a losing streak are wrong.
One important rule: judge the decision, not the outcome. A trade executed exactly to plan that lost is a well-executed trade; a trade that broke your rules and won is a bad trade teaching you a dangerous habit. Judging by outcome alone means learning the wrong lesson from luck.