One setup, one product, one session

The maths of Module 3 assumed you have an expectancy you can trust. That number only exists for a specific setup, in a specific product, during a specific session. Change any of the three and you have a different, unknown number. So the first rule of the game plan is to change none of them for the length of the evaluation.

Why narrowing works

An evaluation is not the place to find out whether your edge transfers to a new product. It is a fixed number of drawdown dollars that you are spending to sample from one distribution, and you want that distribution to be the one you already measured.

Every additional product, setup or session adds:

• A new set of stop distances and therefore a new contract count to compute under pressure.
• A new set of "is this a valid signal?" judgement calls, each a chance to take a marginal trade.
• Correlated risk. Long MES and long MNQ on the same signal is one trade at double size, and the daily limit counts it that way.
• A different cost structure. Spread and commission as a fraction of R differ by product; your logged expectancy is net of one of them, not the others.

None of these are fatal on their own. Together, they mean your real expectancy during the evaluation is lower than the one in your log, and lower than you think.

Choosing the one

Product. The one with the most trades in your log and the smallest risk per contract relative to your stop. On futures, that usually points to a micro contract, because it lets you size in finer steps under the daily limit. On forex, the pair you have traded the most, at the lot size that fits one-tenth of the daily limit.

Setup. The one with the highest logged expectancy and at least 50 occurrences. If two setups are close, choose the one with the smaller average loser; the trailing drawdown punishes givebacks, not small losses.

Session. The window in which the setup was logged. If the log is US cash open to 11:00, trade 09:30 to 11:00 and close the platform. The afternoon is a different market, and "one more trade after lunch" is the most common origin of a breached daily limit.

Key idea: The evaluation samples one distribution with limited drawdown dollars. Make it the distribution you measured, and only that one, for the whole challenge.

The pre-session checklist

Before the session opens, on paper or in a note that is visible on screen:

1. Today's daily limit line as an equity number (from the rules sheet).
2. Today's drawdown line as an equity number.
3. Contracts or lots at one-tenth (or one-fifth, once justified) of the daily limit for the standard stop.
4. Maximum daily profit under the consistency rule, if any.
5. Number of trades allowed today (usually 2 to 4) and the stop-for-the-day rule (next lessons).
6. Any news window today, and the time you will be flat before it.
7. Session end time and the time you will be flat before it.

If any item cannot be filled in, do not trade until it can.

What "one setup" looks like in the log

Write the setup as a checklist with binary conditions, so that two people reading it would agree on whether a given trade qualified. "Pullback to the 20 EMA in a trend" is not a setup; "price above VWAP and the 20 EMA on the 5-minute, a pullback of at least 5 points to within 1 point of the 20 EMA, entry on the close of the first 5-minute candle back above the EMA, stop 2 points below the pullback low" is. During the evaluation, if a trade does not tick every box, it is not the setup and you do not take it, even if it works.

Log every trade during the evaluation in the same format as before it, with the R result. If your challenge expectancy after 20 trades is far below the log, something changed, and it is usually one of the three things this lesson told you not to change.

Try it: Write your one setup as a binary checklist of no more than six conditions. Then go through your last 30 trades and mark which ones would have qualified. If fewer than 20 do, your log is not yet a measurement of this setup.

Recap

• Your expectancy is only known for one setup, product and session; changing any of them makes it unknown.
• Choose the product with the most log history and the finest sizing steps, the setup with the highest expectancy and smallest average loser, and the session you logged.
• Fill in a seven-item pre-session checklist every day; no trading with a blank item.
• Define the setup as binary conditions and log evaluation trades identically to pre-evaluation trades.