Pre-Trade Checklist
Why Checklists Work: The Airline Pilot Principle
When an airline pilot sits in the cockpit of a plane, they don't rely on memory and intuition. They don't think, "I probably did the pre-flight check last time, so I'll skip it today." Every single flight, they go through a mechanical checklist. This checklist has prevented countless accidents. It's standardized across all airlines because it works.
The same principle applies to trading. A pre-trade checklist forces your brain out of emotional mode and into analytical mode. It prevents you from skipping critical steps. It ensures consistency. It removes the burden of remembering everything you need to check. Most professional traders swear by their checklists. Most losing retail traders don't have one.
The 10-Point Checklist Framework
This is the gold standard pre-trade checklist used by professional options traders. Adapt it to your specific trading style, but don't skip any of the 10 points.
1. Market Direction
What is the broader market doing? Is the SPY in an uptrend, downtrend, or range? What's the 20-day trend? The 50-day trend? Most setups have better odds when they align with the broader market direction. If SPY is in a downtrend and you're trying to sell bullish spreads, you're fighting the trend.
Check: SPY chart (daily), QQQ chart (for tech), IWM (for small caps). Are they up, down, or sideways?
2. Sector Trend
Is the specific sector your trade is in trending up or down? If you're selling iron condors on a tech stock during a major tech sector downtrend, you're more likely to get assigned on the short calls. Sector alignment matters.
Check: XLK, XLV, XLF, etc. charts for the relevant sector. Is it aligned with your trade direction?
3. IV Rank Check
Where is the IV rank on this specific symbol? Is it above your trading criteria? If your system only trades when IV rank > 50%, and this stock has IV rank at 32%, you should skip it. IV rank is critical for options pricing and expectancy.
Check: IV rank in your broker platform or on OptionStrat/VolSurface. Is it in your acceptable range?
4. Strategy Selection Criteria
Does this trade fit your strategy framework? If you're an iron condor trader, are you forcing a credit spread or debit spread? If your system specifies 30-45 DTE options, are you looking at 50 DTE or 20 DTE? Match the setup to your strategy.
Check: Does this opportunity fit my core trading strategy? If not, skip it.
5. Strike & Expiry Selection
Are your strikes in line with your historical winners? If your best trades have been at 30 delta short positions, are you looking at 30 delta or jumping to 40 delta? Are you using the right expiry window? Be consistent with what has worked.
Check: Strike selection (delta targets), expiry (DTE), liquidity (bid-ask spread reasonable?)
6. Position Sizing
How much are you risking? Does it match your 1-2% per trade rule? Are you sizing based on your current account size or on a historical account size? Position sizing discipline prevents blowups.
Check: Max loss in dollars, max loss as % of account. Is it within your rules?
7. Maximum Loss Defined
Where will you exit if the trade goes against you? What's your stop loss level? Have you set this in advance, or will you "decide when the time comes?" Deciding in advance is critical. Emotional decisions in the moment are terrible.
Check: Stop loss price level or max loss amount. This is where you'll exit if wrong.
8. Profit Target Set
Where are you taking profits? Have you set this before entry? Your profit target should be based on your edge and position size, not on wishful thinking. Setting it in advance removes greed from the equation.
Check: Profit target in dollars or as % of account. This is where you'll exit if right.
9. Exit Plan Documented
How will you manage this trade? Will you hold to target, or actively manage? For spreads, will you close at 50% profit? For condors, will you adjust, or let them expire? Document this before entry.
Check: What's your specific exit plan if things go wrong? Do you have adjustment rules?
10. Emotional State Check
Finally, check your emotional state. Are you calm and focused? Are you angry from a recent loss? Are you FOMO-ing into this? Are you overconfident? Your emotional state determines decision quality. If you're not in the right emotional state, skip the trade.
Check: Emotional rating (1-10). Are you ready to execute this trade with focus and discipline?
Sample Filled-Out Checklists
Example 1: Iron Condor on High-IV Stock
1. Market Direction: SPY consolidating, no clear trend, slightly bullish bias ✓
2. Sector Trend: Tech sector (XLK) in uptrend, XYZ in consolidation ✓
3. IV Rank: IV Rank 72% (above my 60% threshold) ✓
4. Strategy Selection: 45 DTE IC matches my criteria (30-50 DTE) ✓
5. Strike Selection: 30/25 delta (short call/put), optimal liquidity ✓
6. Position Sizing: $2/contract on $50k account = 1% max risk ✓
7. Max Loss: Will exit if loss reaches $200 (100% of risk) ✓
8. Profit Target: $100 credit, taking 50% profit at $50 ✓
9. Exit Plan: Close 50% at 50% profit, let 50% ride to 25 DTE ✓
10. Emotional State: 8/10 - Calm, focused, no FOMO ✓
DECISION: ENTER TRADE
Example 2: When to Skip (Checklist Fails)
1. Market Direction: SPY in downtrend, bias bearish ✗ (Your setup is bullish)
2. Sector Trend: Consumer discretionary (XLY) weak ✗
3. IV Rank: IV Rank 28% (below your 50% threshold) ✗
4. Strategy Selection: Debit spread doesn't match your core IC strategy ✗
5. Strike Selection: Would use 50 delta (higher risk than your norm) ✗
6. Position Sizing: Want to risk $400 on $50k account = 0.8% OK ✓
7. Max Loss: Yes, but everything else fails ✗
8. Profit Target: Yes, but low probability setup ✗
9. Exit Plan: Vague, not well-defined ✗
10. Emotional State: 9/10 - FOMO from social media hype ✗
DECISION: SKIP TRADE
Building Your Personal Checklist
The 10-point framework is a starting template. You should customize it for your specific approach. Here's how:
- Copy the 10-point framework
- For each point, write your specific criteria. Don't leave it vague.
- Example: Instead of "Good setup quality," write "Setup matches 3+ of my defined patterns: (A) IV rank > 50%, (B) 30-45 DTE, (C) Delta 25-35, (D) Sector in uptrend"
- Print your checklist or save it as a note on your phone
- Use it before EVERY trade. Non-negotiable.
- After 100 trades, review your checklist. Did failed trades skip any checklist items? Add more detail to those items.
The Checklist-Checklist: Verifying Your Checklist Works
After 50 trades with your checklist, analyze which items mattered most:
- Did trades that passed all 10 items have higher win rates than trades that failed items?
- Which checklist item, when failed, had the worst impact on results?
- Which item, when passed, gave you the highest confidence?
Use this data to refine your checklist. Maybe market direction doesn't matter for your edge, but IV rank absolutely does. Adjust accordingly.
Mechanical Execution: The Critical Habit
The checklist only works if you actually use it. Not occasionally. Every single trade. Some traders report that they follow their checklist 90% of the time, and their 10% non-checklist trades have a 35% win rate, while checklist trades have a 58% win rate. The checklist is the difference.
Make it a habit. Set your phone alarm to prompt you 5 minutes before market open: "Have you done your pre-trade checklist?" Make it impossible to forget.
Real Example: Checklist Prevents Disaster
Key Takeaways
A pre-trade checklist is not optional for professional traders. It's essential. The 10-point framework covers market direction, sector trend, IV rank, strategy fit, strike/expiry selection, position sizing, max loss, profit target, exit plan, and emotional state. Use this framework to build your personalized checklist. Execute the checklist before every trade, without exception. After 50 trades, refine your checklist based on data. The traders with checklists have higher win rates, fewer catastrophic losses, and consistent profitability. The traders without checklists are relying on emotion and memory, which fail them consistently. Your choice is clear.