Risk-first workflow
The pre-trade review checklist for active traders
A useful review does not tell you whether a trade will win. It makes the proposed risk, invalidation, source quality, execution assumptions, and reasons to stand aside explicit before the order ticket.
Direct answer
What should a pre-trade review contain?
At minimum: the setup and time horizon, current data source and freshness, catalyst or context, entry condition, thesis invalidation, planned risk per unit, maximum dollar-risk budget, resulting size, order-type limitations, portfolio exposure, and a written no-trade condition.
Who this checklist is for
Useful for
Self-directed active traders reviewing short-horizon equity setups, especially users practicing in IBKR Paper TWS.
Not a substitute for
Independent research, suitability analysis, professional advice, broker disclosures, or understanding the security and order types being used.
The ten-step review
- Name the setup and horizon.Describe the observable condition and the time frame in plain language. “It looks good” is not a testable setup.
- Verify the source and timestamp.Record whether the quote, bars, volume, and news are current, delayed, stale, or unavailable. Do not silently substitute one source for another.
- State the context.Identify the catalyst, broader market condition, nearby support or resistance, spread, liquidity, and any scheduled event that could change the risk.
- Define the entry condition.Use an observable trigger rather than an urge to participate. The entry should be distinguishable from chasing a move already extended beyond the plan.
- Define thesis invalidation first.Write the market condition that would make the setup wrong before calculating size. See the invalidation guide.
- Choose the risk budget.Set a maximum planned dollar loss that fits the account and existing exposure. Lumiere does not prescribe a universal percentage.
- Calculate and constrain size.Start with dollar risk divided by risk per unit, round down, then reduce for liquidity, buying power, gaps, fees, slippage, and portfolio concentration. See the sizing formula.
- Review order behavior.A stop price is a trigger, not a guaranteed execution price. A stop-limit can control price but may not execute. Review the broker’s current order documentation.
- Check total portfolio risk.Consider correlated positions, margin impact, existing daily losses, and whether the new trade duplicates exposure already present.
- Write the no-trade condition.Examples include stale data, a spread wider than the plan allows, an invalidation distance that makes size impractical, missing liquidity, or a setup that already failed.
Why order behavior belongs in the checklist
The SEC explains that when a stop price is reached, a stop order becomes a market order, so the execution price can differ materially from the stop price in a fast market. A stop-limit order adds price control but introduces the risk of no execution. That distinction means “entry minus stop” is a planning input, not a guaranteed maximum loss.
Primary source: SEC Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders.
A compact review card
- Setup
- What observable condition exists, on what time frame?
- Source
- Which provider and timestamp support the review?
- Invalidation
- What evidence makes the thesis wrong?
- Risk
- What is the planned risk per unit and maximum dollar budget?
- Execution
- What can gap, slip, partially fill, or fail to execute?
- No trade
- Which condition makes standing aside the correct action?
Apply the checklist