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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.

Reviewed by Lumiere Trading Mentor

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

  1. Name the setup and horizon.Describe the observable condition and the time frame in plain language. “It looks good” is not a testable setup.
  2. 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.
  3. State the context.Identify the catalyst, broader market condition, nearby support or resistance, spread, liquidity, and any scheduled event that could change the risk.
  4. 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.
  5. Define thesis invalidation first.Write the market condition that would make the setup wrong before calculating size. See the invalidation guide.
  6. Choose the risk budget.Set a maximum planned dollar loss that fits the account and existing exposure. Lumiere does not prescribe a universal percentage.
  7. 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.
  8. 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.
  9. Check total portfolio risk.Consider correlated positions, margin impact, existing daily losses, and whether the new trade duplicates exposure already present.
  10. 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.

Decision gate

What lets the review continue—and what stops it?

This continue-or-stop comparison does not automatically approve a trade. Each field must be specific enough to inspect, and any failed constraint can end the review with “no trade.”

Review fieldContinue only whenStop or revise when
Source and freshnessThe provider, timestamp, session, and time frame are known and usable for the decision.Data is stale, delayed without acknowledgement, unavailable, or silently replaced.
Setup and entryThe observable setup and entry condition can be checked without relying on “looks strong” or urgency.The setup is vague, the trigger already passed, or price moved beyond the written condition.
Thesis invalidationThe evidence that makes the setup wrong is defined on the same horizon.The level comes from a preferred share count, desired loss, or arbitrary percentage instead of the thesis.
Size and constraintsThe whole-share ceiling fits the selected budget and every lower capital, liquidity, portfolio, and broker constraint.The result is zero, concentration is unacceptable, or any lower ceiling is missing or exceeded.
ExecutionSpread, liquidity, gaps, order behavior, fees, slippage, and non-execution have been considered.The plan assumes a stop guarantees its price or ignores a stop-limit order's non-execution risk.
No-trade conditionThe trader can name the condition that ends the review before an order decision.Every path leads to taking the trade or the stop condition is left implicit.

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.

Synthetic paper example

A complete calculation can still end with no trade.

Assume a hypothetical long-share review—not a current security or market quote—with a 50.00 USD entry condition, 49.20 USD thesis invalidation, 80.00 USD selected dollar-risk budget, and 4,000.00 USD capital ceiling.

Planned risk per share50.00 - 49.20 = 0.80
Risk-budget ceiling80.00 / 0.80 = 100 shares
Capital ceilingfloor(4,000.00 / 50.00) = 80 shares
Lower theoretical ceiling80 shares; 80 × 0.80 = 64.00 planned price risk

The lower 80-share result is still not permission to trade. If the source becomes stale, the spread exceeds the plan, liquidity is insufficient, portfolio exposure is unacceptable, or an event changes the setup, the correct completed output is no trade. The arithmetic cannot evaluate suitability or guarantee a fill or maximum realized loss.

Regulator source reviewed August 4, 2026: Investor.gov on stop and stop-limit execution.

Risk source reviewed August 4, 2026: FINRA Rule 2270 day-trading risk disclosure, including volatility, execution, system, margin, and short-selling risks.

Broker source reviewed August 4, 2026: IBKR TWS Check Margin Pre-Order, which can display commissions, margin impact, and order details before transmission.

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?

Lumiere’s opt-in beta research protocol measures whether ten corresponding structured fields are present; it does not score trading skill or performance. Read the completeness benchmark methodology before interpreting any future result.

Use the private browser-only review template to check the fixed fields and calculate simplified whole-share risk without submitting the values.

For the broker handoff, use the IBKR Paper TWS pre-trade workflow to complete these fields before checking margin and portfolio-relative what-if risk.

Apply the checklist

Inspect the public sample before creating a protected review.

See the completed evidence, invalidation, sizing, constraints, and no-trade fields first. Email verification is only the next step if you choose one protected analysis and saved sample plan.

Open the demo