FishbyNight,
That's correct, step 2 is just to loosen the reel up and warm the drag plates a bit.
In step 3, I did omit a rather important point. As Capt Ted said keep the rod tip high enough so it will load under drag pressure.
:!: When pulling drag with the scale the line should be pulled off the reel in a smooth and steady motion, make sure to take all the slack out of the line before you begin. Hard jerking pull's will give you an inaccurate (much higher) drag reading's due to sudden loading of the rod and the reel start-up inertia.
I personaly like to have the rod in a holder or held so I can see whats the scale is reading as I am pulling drag because the scale marker ring will normaly if not always read a bit higher because of the inertia (can't get away from the little sucker) start-up.
I dont mean to imply that you can't set the drag alone its just easier with help. The method you useing will work, I've used it for years to test how a rod will feel under differant drag pressure especially light tackle and fly rods