Start with five ideas, then require each one to earn a place through the same four-field review. Keep only the two candidates whose entry, invalidation, position size, and reason for taking the trade remain clear after the excitement fades.
Educational content, not financial advice.
1. Begin with five ideas, not one favorite
A Sunday watchlist can fill quickly: a crypto token breaking a recent range, a stock near earnings, a sector moving on news, a mean-reversion setup, and a continuation trade. Five ideas are enough to compare. More than that can turn review into browsing.
Write each idea on its own line. Do not rank them yet. A favorite setup often receives more generous assumptions than the others, especially after a recent win or loss.
Before reviewing the list, set the limits that apply to every candidate: your trading time horizon, maximum loss per trade, and total risk you are willing to carry at once. FINRA advises defining goals, time horizon, risk tolerance, and how much you can afford to lose before selecting investments. Those decisions belong before the trade idea, because a good-looking chart cannot set your risk limit for you.
2. Write the entry before the market opens
The first field is the entry condition. “I like it” is not an entry. “Buy if price closes above Friday’s high and holds that level for 15 minutes” is an entry condition.
Be precise enough that you could later tell whether you followed the plan. For example:
- Enter only after a 30-minute close above $48.20.
- Enter only if volume is higher than the prior 30-minute bar.
- Skip the trade if the opening move has already exceeded the planned entry range.
This field removes ideas that rely on watching a chart and deciding by feel. If you cannot state what must happen before you enter, the idea is a market opinion. It has not reached the standard of a planned trade.
3. Set the invalidation point and calculate risk
The second field is the price that proves the idea wrong. This is your invalidation point, commonly expressed as a stop level. Put it where the trade premise fails, not where the dollar loss feels comfortable.
Suppose an entry is planned at $48.20 and the setup fails below $46.80. The risk per share is $1.40. With a $100 maximum loss, the maximum position is 71 shares before fees and slippage:
$100 ÷ $1.40 = 71.4
Rounding down protects the limit. A sudden move, spread, or stop fill below the intended price can still make the actual loss larger. What Happens When Your $100 Stop Fills at $94? explores why the planned loss and the filled loss can differ.
Discard an idea if the stop must sit so far away that the position becomes too small to trade practically, or if a smaller stop would cut through normal price movement. That is a tradeoff worth seeing on Sunday, before it becomes a rushed adjustment on Monday.
4. Size the position from the stop, never from conviction
The third field is position size. Calculate it from the fixed dollar risk and the distance between entry and invalidation.
For a $100 risk limit:
- A $0.50 stop supports up to 200 units.
- A $2.00 stop supports up to 50 units.
- A $5.00 stop supports up to 20 units.
The wider stop does not permit the same size. Keeping size constant while widening the stop quietly changes the amount at risk. That drift is easy to miss when a setup feels unusually convincing, which is why position sizing should be written beside the stop, not calculated only after a trade is underway.
Consider costs here too. Commissions, spreads, funding, and slippage reduce the room between a planned trade and its real result. For thinly traded names, fast-moving crypto pairs, or positions held through an event, leave more room in the risk budget or reject the idea.
5. State the reason the trade deserves capital
The fourth field is the evidence for the setup. Use observable conditions, not predictions.
A useful note might read: “Price reclaimed a prior daily level, the broader trend remains upward, and the entry triggers only if the level holds after the open.” An unhelpful note reads: “This should run.”
This field forces a distinction between a repeatable condition and a story. It also creates a better trading-journal record. After the trade, you can review whether the entry, stop, size, and thesis matched the outcome. You cannot review “felt strong” in any useful way.
At this point, score each idea with a simple pass or fail. An idea fails if one of the four fields is missing, vague, or incompatible with your limits.
Keep the two that stay intact under review
Two candidates often remain because their plans are simple enough to execute. Their entries are defined, their invalidation points make sense, their sizes fit the risk cap, and their reasons rely on observable conditions.
The other three may still move. They may even move sharply. Missing a move is different from breaking a process. A smaller watchlist reduces the temptation to improvise, chase, or add risk after the session starts. It also leaves room to respect diversification and avoid concentrating capital in several versions of the same market idea.
Before Monday’s open, place the two survivors in your journal with all four fields, then write one sentence beside each: “No trade if the entry condition does not occur.” Review that sentence before placing any order.
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