Should I Take This Trade? A 10-Point Pre-Trade Checklist
A promising chart or compelling idea is not a complete trade plan. Before you place an order, define what would make the idea wrong, how much you could lose, whether the size fits your account, and what you will do next.
The 10-point checklist
1. Can you explain the thesis in one sentence?
Write what you expect to happen and why. “The stock looks good” is not testable. A useful thesis identifies the setup or business expectation and the time horizon. If the reason changes after entry, treat that as a new decision rather than silently rewriting the original plan.
2. What would prove the idea wrong?
Define invalidation before calculating size. It might be a price level, a failed technical setup, a changed fundamental fact, or a time limit. A stop price can be part of the plan, but it does not guarantee execution at that exact price; gaps, fast markets, and liquidity can produce a different fill.
3. Are the entry, stop, and target explicit?
Write actual numbers or clearly defined conditions. The distance between entry and stop determines planned risk per share. The distance between entry and target describes potential reward per share. Neither number predicts the probability of reaching the target.
4. What is the dollar risk?
|Entry price − stop price| × number of shares
This is a simplified estimate. It excludes commissions, slippage, taxes, overnight gaps, partial fills, and the possibility that a stop order executes away from its trigger price.
5. What percentage of the account is at risk?
Planned dollar risk ÷ account value × 100
There is no universal percentage that is appropriate for every person or strategy. The useful question is whether the proposed loss fits a limit you chose before seeing this particular setup.
6. Is the position exposure reasonable?
A trade can have a nearby stop and still consume a large portion of an account. Check both planned loss and total position value. Also consider existing holdings: five separate technology positions can behave like one concentrated exposure during a sector selloff.
7. Does the potential reward justify the planned risk?
Calculate reward divided by risk, then ask whether the target is grounded in a plausible level or scenario. Moving a target farther away merely to improve the ratio does not improve the underlying setup.
8. Are liquidity and event risks understood?
Check spread, typical volume, earnings dates, economic releases, corporate actions, and other events that could change price or execution. Options require additional attention to expiration, assignment, leverage, implied volatility, and contract liquidity. FINRA notes that options risks differ materially between buying and selling and can include losses beyond the initial investment for some positions.
9. Is emotion changing the plan?
Pause after a large win, a loss streak, a missed move, or the urge to “make it back.” If you would reject the same size on an ordinary day, excitement or frustration is not a sound reason to accept it now.
10. Is the exit process written down?
Decide what happens at the stop, target, time limit, and any material change in the thesis. Include what you will not do—for example, add size simply because price moved against you. A written process reduces the number of decisions you must improvise while money is at risk.
Worked example
Assume a hypothetical trader is considering 100 shares at a $50 entry, with a $48 stop and a $55 target in a $25,000 account.
| Check | Calculation | Result |
|---|---|---|
| Risk per share | $50 − $48 | $2 |
| Planned dollar risk | $2 × 100 shares | $200 |
| Account risk | $200 ÷ $25,000 | 0.8% |
| Position value | $50 × 100 shares | $5,000 |
| Potential reward per share | $55 − $50 | $5 |
| Reward/risk | $5 ÷ $2 | 2.5:1 |
The arithmetic describes the proposed structure; it does not say the trade should be taken or estimate the chance of success. The trader still needs a thesis, an evidence-based invalidation level, liquidity and event checks, portfolio context, and a personal risk limit.
TAKE
Actual RichesReach output depends on the inputs and available data. A verdict is decision support, not a prediction or individualized recommendation.
Turn the checklist into a Trade Check
Enter the stock or option, side, entry, stop, target, account balance, and quantity. RichesReach shows the risk math and a plain-English verdict such as Take, Take Smaller, Wait, Pass, or Blocked.
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Editorial note: This article provides general education and simplified hypothetical examples. It is not individualized investment advice, a recommendation to trade, or a guarantee of any result. Product descriptions were checked against the RichesReach Trade Check implementation on August 21, 2026.