Lessons › Trading psychology and process › Routines and the pre-trade checklist
World 9 · Trading psychology and process · lesson 10 · level 3
Routines and the pre-trade checklist
Pilots run a checklist before take-off, and a trader's checklist does the same job before every trade.
In one line
Pilots with thousands of flying hours still read a checklist before take-off. Why would a trader skip one?
Explained simply
Before a school trip you check: bag, water, lunch, ticket. A checklist catches the one thing you would forget when rushing. A trading checklist does the same job before every trade.
The lesson
A routine covers before, during and after trading: checking the economic calendar and key levels, taking only planned setups, and reviewing afterwards. A pre-trade checklist of five to seven questions, covering trend, level, setup, stop, size, events and emotion, catches mistakes before they cost money. Checklists help experts too: pilots run a before-takeoff checklist, and in a study across eight hospitals, complications after surgery fell from 11.0% to 7.0% of patients after a checklist was introduced. Short checklists that you actually use beat long ones that get skipped.
A worked example
Illustrative example: your risk rule is 1% of a 15,000 dollar account, which is 15,000 x 1 / 100 = 150 dollars. The setup has entry 75 and stop 72, so the risk per share is 75 - 72 = 3 and the size is 150 / 3 = 50 shares. The checklist runs: trend up (yes), at support (yes), setup rules met (yes), stop below the swing low (yes), size 50 shares (yes), events: results due tomorrow (fail), emotion calm (yes). That is 7 - 1 = 6 passes and one fail, so the trade is skipped.
The same idea at four levels
- Beginner. A checklist is a short list you tick before every trade.
- Foundation. Check trend, level, setup, stop, size, upcoming news events and your emotion.
- Intermediate. Build a routine: before (calendar and levels), during (planned setups only) and after (journal and review).
- Advanced. If any item fails, the trade is skipped rather than 'mostly taken', because a checklist only works when a failed item means no.
- Expert. Keep it to five to seven items, check which items catch the most errors in your journal, and replace items that never catch anything with ones that do.
Mistakes to avoid
- Making the checklist so long that you start skipping it.
- Ticking boxes without actually checking.
- Taking a trade that fails one item because the rest 'look great'.
Check yourself
What is a pre-trade checklist?
A short list you tick before every trade. It runs before every trade, every time.
Which item belongs on a trading checklist?
Stop placed where the idea is proven wrong. Where you are wrong is a key check.
One checklist item fails. What happens to the trade?
Skip it. A failed item means no.
Who runs a checklist before take-off?
Pilots. Even the most experienced pilots use one.
Account 15,000 and risk 1%. What is the risk amount?
150. 1% of 15,000 is 150.
Goal of this lesson: Build a short pre-trade checklist and daily routine that keep decisions consistent.