Most trading mistakes aren't made at the moment of the loss. They're made at the moment of entry, when something obvious went unasked: the central bank meeting two days into the trade, the position that doubled an exposure you already had, the exit you never defined.
A pre-trade checklist catches those before they cost anything. It doesn't make the decision for you. It makes sure the decision you're about to make has been looked at from every side that matters.
How to use this checklist
- Answer in writing, not in your head. "Yes" in your head is often "I think so" on paper. The act of writing is what surfaces the gaps.
- Treat "I don't know" as a finding. An unanswerable question means either more work or a smaller position — not a skipped box.
- Do it before the order ticket is open. Once you're looking at a price, the checklist becomes a formality.
- Keep the answers. Your checklist is the first entry in your trading journal. When you review the trade later, you'll know exactly what you knew.
The full checklist takes ten to twenty minutes for a new idea. For a quick trade, use the one-minute version at the end.
1. The trade
If you can't state the trade clearly, nothing after this matters. The trade section is where most trades should be rejected — cheaply, before any risk is taken.
- Is the trade written as a paragraph? Asset, direction, timeframe and reasons, in full sentences.
- What is the catalyst, and when? A trade without a catalyst is a hope with a timeframe.
- Why hasn't the market priced this already? If you can't answer, you have a view, not an edge.
- What kind of trade is this? Trend, mean reversion, event, relative value or macro. Each one needs different exits, so name it now.
- Would I take this trade if I didn't already hold a view on this asset? Guards against trades that exist only to confirm an old opinion — see confirmation bias in trading.
2. The evidence
- Does every factual claim have a primary source I've actually read? Filings, central bank statements, official data — not a summary of a summary.
- Which parts are assumptions? Mark anything that is really a forecast, like "rates will fall" or "margins will recover".
- Have I checked the latest data, including revisions? Last month's number may have been revised away.
- Can all my reasons be true at the same time? Contradictions between reasons are common and easy to miss.
This section is the short form of a full trade stress test. For the complete method, see how to stress-test a trade idea.
3. The other side
- Have I written the strongest case for the opposite trade? One I'd be uncomfortable holding against — not a straw man. See bull vs bear case examples.
- Who is on the other side of this trade, and why do they think they're right?
- Which facts would have to change for them to win? These are the facts to watch once you're in.
- What driver of this asset does my trade not mention? Every asset has a known set of drivers. The one you ignored still moves.
4. Market context
- What's on the calendar inside my timeframe? Central bank meetings, major data releases, earnings, auctions, index rebalances, option expiries.
- What is already priced? Futures, forwards and consensus estimates tell you what the market expects. You need to be right versus that, not just right.
- Is this trade crowded? Check positioning data, short interest and sell-side consensus. If everyone you follow agrees, that's a sample of the crowd. See how to tell if a trade is crowded.
- Is liquidity adequate for my size and timeframe? Spreads, depth, trading hours, holidays and the ability to exit in a hurry.
- How does this trade correlate with what I already hold? A new position can quietly double an existing bet.
5. Risk and sizing
- What are my invalidation conditions? Two or three specific events or data points that would mean the trade — not just the price — is wrong. See how to set an invalidation point.
- When should this have worked by? A time stop protects against capital sitting in a trade whose catalyst has passed.
- Where is my stop, and is it outside normal noise? A stop inside the asset's everyday range is a coin flip, not a risk limit.
- What is the maximum I lose, in money, if the stop is hit? Write the number. Size the position from it, not from conviction.
- What happens if it gaps through my stop? Overnight, weekend and event gaps can make the real loss larger than the planned one.
6. Execution and review
- How will I enter? Market or limit, all at once or scaled — decided before, not during.
- How will I take profit? A target, a trailing stop or a broken reason. Winners need a plan as much as losers.
- Is the journal entry written? Trade, evidence, the other side, invalidation, size and the reason for acting now.
- When will I review this trade? Set a date or an event. Reviews that aren't scheduled don't happen.
The one-minute version
Short-term traders don't have twenty minutes per trade. These five questions cover most of the damage:
- Why this, why now — in one sentence?
- Is there a scheduled event before I plan to exit?
- What would make me wrong, other than price?
- How much do I lose, in money, if the stop is hit?
- Does this add to a bet I already have?
If any answer is "I don't know", the trade can wait for the full checklist.
Extra checks by asset class
The core questions apply everywhere. Each market also has its own traps worth adding to your version.
| Asset class | Add these checks |
|---|---|
| Equities | Next earnings date; ex-dividend dates; borrow availability and cost for shorts; index inclusion or rebalancing; lock-up expiries and planned share sales |
| FX | Central bank meetings for both currencies; intervention risk; weekend gap risk; carry and rollover cost; local holidays thinning liquidity |
| Rates | Auction calendar and supply; inflation and labour data dates; central bank speakers; curve positioning; month- and quarter-end flows |
| Commodities | Inventory report dates; contract roll and expiry; delivery rules; curve shape and roll yield; weather and supply disruptions |
Why pre-trade checklists fail
- Ticking instead of answering. A checkbox invites a reflexive yes. Write a sentence for every question.
- Filling it in after the order. Then it's a justification, not a check.
- Letting conviction override a "no". The trades you feel most sure about are the ones where the checklist matters most.
- Making it so long you skip it. Cut questions that never change a decision, and keep the one-minute version for fast trades.
- Never updating it. Every painful trade review should add or sharpen a question.
Checklist, trading plan and journal: the difference
A trading plan describes how you trade in general: markets, strategies, risk limits, hours. A pre-trade checklist applies that plan to one specific trade before entry. A trading journal records what you did and why, so you can learn from it later. The checklist is the bridge — your answers become the journal entry, and your journal reviews improve the plan.
Doing the hard part faster
The questions that take longest are the ones in sections 2 and 3: sourcing every claim and building an honest opposing case. That's the work Blindspot does. Give it the asset, the direction, the timeframe and your trade in your own words, and it returns a case file: bull case, bear case, blindspot discovery, contradictions, an independent market view, and invalidation conditions. No signals, no price targets — it scores the reasoning, never the trade.
Frequently asked questions
What should be on a pre-trade checklist?
At minimum: a written trade with a catalyst and a reason the market hasn't priced it, the evidence behind it, the strongest opposing case, the events inside your timeframe, what is already priced, crowding, correlation with existing positions, invalidation conditions, a stop, the maximum loss in money, and an entry and exit plan.
How long should a pre-trade checklist take?
Ten to twenty minutes for a new idea. For short-term trades, a five-question version covering the reason, scheduled events, invalidation, maximum loss and correlation takes about a minute.
Is a pre-trade checklist the same as a trading plan?
No. A trading plan sets out how you trade in general — markets, strategies, risk limits. A pre-trade checklist applies that plan to one specific trade before you enter it.
Do day traders need a pre-trade checklist?
Yes, but a shorter one. Day traders still get caught by scheduled data releases, oversized positions and trades that duplicate an existing exposure. A one-minute checklist catches most of these.
How should position size be decided on a checklist?
A common approach is to decide the maximum amount you are willing to lose if the stop is hit, then size the position so that the distance to the stop equals that amount. This ties size to risk rather than to conviction. It is a general convention, not a recommendation for any individual.
This guide is general education about research process. It is not investment advice or a recommendation to trade any instrument. Trading involves risk of loss.