Setup
A hypothetical EUR/USD setup requires the M5 Bid close to exceed the highest high of the previous 12 completed candles by 2 pips, an approved session and passed risk filters. An available Ask entry of 1.1002, SL of 1.0987 Bid and model target of 1.1032 Bid give 15 pips of risk and 30 of reward. On a USD 10,000 account, an illustrative 0.5% budget is USD 50. At EUR 100,000 per lot, 0.33 lot has USD 49.50 of price risk to the stop without slippage. Costs require further headroom or less size.
Context, trigger and necessary conditions
A setup describes a qualifying scenario, not just a chart’s appearance. Separate market context from the trigger: conditions can persist for many candles while a particular close initiates the assessment. State the instrument, data, timeframe, assessment time, allowable entry price and invalidation rule. Also specify expiry. “A breakout in a strong trend” remains ambiguous unless both components have a defined decision procedure.
Quality grades do not replace the risk gate
A+/B/C labels can organise scenarios, but are neither a market standard nor proof of greater edge. A failed necessary condition, such as unavailable exposure capacity, should not be offset with quality points. If grades determine size, document that policy and its evidence. “Full risk” must still comply with the plan’s limits. Do not enlarge a position merely because the chart looks unusually convincing.
Review skipped scenarios as well
A setup card should include valid, invalid and borderline examples using information available before the decision. Record rejected signals alongside actual trades. Distinguish execution quality from outcome: a compliant trade can lose, and a breach can profit. A reproducible description supports testing but does not itself establish positive expectancy. Changing a threshold, filter or exit creates a variant requiring separate evaluation.
Further learning and sources
15.2 Trading plan and setup playbook — rules, risk and review; 8.1 Trading style versus trading system: when you are in the market and exactly what you do; 9.5 Position sizing: lot-sizing models.
