The pre-trade risk checklist: 15 items before you click buy
This is the same routine used by funded prop traders and professional discretionary desks. It takes ninety seconds. It removes the most common reasons accounts go to zero. Print it, stick it next to your monitor, and run it in order.
- 1
Define the invalidation level before entry
If you cannot point to the exact price that proves the trade wrong, you have no risk. You have a hope.
- 2
Set risk per trade as a fraction of equity, not a fixed dollar number
A $500 stop is a 0.5% risk on a $100k account and a 5% risk on a $10k account. Same trade, twenty times the ruin probability.
- 3
Cap risk per trade at 1% (0.5% if trading prop firm capital)
At 2% risk per trade with a 50% win rate, the probability of a 10-trade losing streak is 0.1%. Across 1,000 trades that streak happens roughly once. Your account does not survive it.
- 4
Calculate the dollar P5 loss for the position, not just the percent
Percentages do not feel real. $4,200 at risk on a single AAPL call feels real. Use the dollar number to size down before you click Buy.
- 5
Verify the position is uncorrelated with anything you already hold
Three long tech names is one trade in three wrappers. Add their notional risk together before sizing the new one.
- 6
Check expected R-multiple, not just win rate
A 70% win rate at 0.5R is worse than a 35% win rate at 2R. Win rate without R is a vanity metric.
- 7
Confirm the strategy has positive expectancy in your simulation
If your Monte Carlo run shows ruin probability above 30% at your chosen size, no amount of discipline saves you. The size is wrong.
- 8
Write the exit plan before the entry
Stop loss, profit target, time-based exit, and the trigger that moves the stop to break-even. Pre-decided. Not improvised.
- 9
Confirm liquidity at your stop level, not just at your entry
Spreads widen on the stop side. A trade that looks like 0.5R risk on the screen is often 0.7R after slippage in low-liquidity hours.
- 10
If trading a prop account, model the firm's drawdown rule explicitly
Trailing drawdown ratchets up after winning streaks. A trade that passes your personal risk test can still violate Topstep's $2,000 trailing-EOD rule on a normal pullback.
- 11
Check upcoming news / earnings within your holding window
Earnings move single names 5-15% routinely. Macro releases move indices 1-3%. Either can blow through stops before fills.
- 12
Verify your platform's order routing for the order type
Some brokers convert stops to market orders that slip; others use stop-limit that may not fill at all. Know which you have.
- 13
Write the trade hypothesis in one sentence
If you cannot describe in one sentence why this trade exists, you are gambling on a chart pattern, not executing a thesis.
- 14
Identify the rule that, if broken, requires you to close immediately
Pre-committing to a kill switch is the only thing that prevents ego from holding losers into ruin.
- 15
Run a 1,000-path Monte Carlo on the strategy, not just the trade
Single trades are noise. Strategies are signal. The number that matters is the survival probability of the system, not the win probability of this entry.
Why a checklist beats a rule book
Active traders make hundreds of micro-decisions per session. The cognitive cost of re-deriving every risk rule from scratch on every trade is exactly why even experienced traders skip them under stress. Checklists move risk discipline out of willpower and into a 90-second mechanical routine.
The aviation industry adopted pre-flight checklists for the same reason: not because pilots forget how to fly, but because under load, the most important steps are the first ones to be skipped. Trading is no different.
Run the full Monte Carlo simulation in the app
Items 7 and 15 require running thousands of simulation paths against your strategy. The free web calculator gives you a quick survival grade. The iOS app runs the full 10,000-path Monte Carlo Quick Test against real historical volatility, with prop-firm rule-aware modeling on Quick Test.
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