Yup, normally only change the code with the transponder in the standby position.
The reason os not only that one could cycle through 75,76,7700 but also the fact that you could cycle through a code assigned to another aircraft.
For example you are given a code of 0002. If you cycle through 0001 on the way to 0002 and another aircraft is already assigned 0001 by ATC then there can be momentary identification problems.
I know that the time it takes is very small but there is a distinct posibility.
The method I recomend is;
Write down the assigned code
Select Standby
Dial in the code
Confirm the code against the written record
Return to ALT
Regards,
DFC