How to Evaluate a Trade Setup — Risk-Reward Checklist Before Entry

Every trade you take should pass a checklist before you enter. Not after, not during, not "I will check later." Before. A 60-second checklist prevents the majority of bad trades. Here it is.

The 5-Step Pre-Trade Checklist

Step 1: Calculate Risk-Reward (10 seconds)

Enter your entry, stop loss, and target into the R:R calculator.

• Below 1.5:1: STOP. Do not take this trade. The math is against you
• 1.5:1 to 2:1: Proceed with caution. You need a high-confidence setup
• 2:1 to 3:1: Good. Continue to step 2
• Above 3:1: Excellent. Verify the target is realistic, then proceed

Step 2: Calculate Position Size (10 seconds)

Enter your account size, risk percentage, entry, and stop into the position size calculator.

• Never risk more than 1-2% of your account on a single trade
• The calculator tells you exactly how many shares to buy
• If the position size seems too small to be worth it, the trade might not be suitable for your account size - and that is okay

Step 3: Confirm the Setup (1-2 minutes)

• Is the chart pattern clear? If you have to squint and imagine the pattern, it is not there
• Is the stop loss at a logical level? Below support for longs, above resistance for shorts. Not at an arbitrary distance
• Is the target at a logical level? Next resistance for longs, next support for shorts. Not "I hope it goes there"
• Is there a catalyst? Earnings, news, sector rotation, technical breakout. Why would the stock move to your target?

Step 4: Check Market Context (30 seconds)

• Are you trading with the trend? Buying in an uptrend has a higher probability than buying in a downtrend. The trend is your friend until it is not
• Is the market open and liquid? Avoid placing trades in pre-market or after-hours unless you specifically trade those sessions
• Is there upcoming news? Fed announcements, earnings, economic data. These can invalidate your setup regardless of the chart

Step 5: Check Yourself (10 seconds)

• Are you revenge trading? Did you just take a loss and want to "make it back"? If yes, walk away
• Are you forcing a trade? Is this a genuine setup or are you bored and looking for action?
• Have you hit your daily loss limit? If you have already lost 2-3% today, stop trading for the day
• Can you afford to lose the max loss amount? If the answer causes anxiety, you are risking too much

The Quick Version

Check	Time	Pass Criteria
R:R ratio	10 sec	2:1 or better
Position size	10 sec	1-2% max risk
Chart setup	1-2 min	Clear pattern, logical levels
Market context	30 sec	With trend, no imminent news
Self check	10 sec	Rational, not emotional

Total time: under 3 minutes. If any check fails, do not take the trade. There will be another one.

Your Pre-Trade Tools

• Risk Reward Calculator - step 1
• Position Size Calculator - step 2
• Stock Profit Calculator - see P&L at target