Pre-Trade Checklist for Equity Trading

I. General Principles (Must Read Before Every Trade)

  1. Goal Confirmation

    • Does my operation serve my long-term investment goals?
    • Am I trading impulsively due to short-term market fluctuations, emotions, or external advice? (If “Yes,” pause and calmly review the situation)

  2. Cost Consciousness

    • Do transaction fees (commission, stamp duty, management fees) significantly impact returns?
    • Is “friction cost” accumulating due to frequent trading?

  3. Discipline

    • Does the operation align with the pre-determined strategy (e.g., DCA plan, rebalancing rules)?
    • Is there a “regret mindset” (e.g., remorse for not acting in time)?

II. Pre-Purchase Checklist for ETFs

1. Basic Conditions

  • Is the long-term holding period ≥ 3–5 years? (Conflicts with the short-term trading philosophy)
  • Is the tracked index clear (e.g., S&P 500, CSI 300) and sufficiently liquid? (Avoid niche or complex derivatives)
  • Is the expense ratio reasonable (e.g., annual fee ≤ 0.3%)? (Low cost is the core advantage of passive investing)

2. Market and Valuation

  • Is the current market in a state of extreme overvaluation? (Refer to PE/PB percentile: Caution is needed if the S&P 500 PE is above the 25th percentile)
  • Am I blindly following the trend due to recent gains? (Beware of the “this time is different” cognitive trap)

3. Risk Management

  • Is the portfolio overly concentrated in a single industry or region? (e.g., Tech stocks exceeding 40%, requiring diversification)
  • Have I reserved sufficient cash to handle Black Swan events? (e.g., If emergency reserves are insufficient, postpone adding more capital)

4. Emotional Test

  • Is the reason for buying based on rational analysis, rather than “Fear of Missing Out” (FOMO)?
  • Am I buying at a low price due to panic selling? (When the market crashes, one must calmly assess, not blindly buy the dip)

III. Pre-Sale Checklist for ETFs

1. Core Principles

  • Is there a clear, non-negotiable reason to sell? (Passive investing prioritizes “holding”; selling must be deliberate)
  • Am I selling in a panic due to short-term volatility (e.g., a 20% drawdown within one year)? (Historical data shows that short-term drawdowns usually recover)

2. Necessity Assessment

  • Has the underlying index component significantly deviated from the target (e.g., one company in a Tech ETF has excessive weight)?
  • Has the goal been achieved (e.g., the education fund has accumulated the required capital)?

3. Risk and Alternatives

  • Does the capital have a clear destination with higher potential returns after selling? (e.g., shifting to bonds or cash, requiring an opportunity cost assessment)
  • Am I “cutting losses” and exiting due to a market crash? (Historical experience shows that exiting at a low point often misses the recovery)

4. Emotion and Discipline

  • Am I trading based on media-driven panic sentiment? (e.g., “Doomsday” or “Bull Market End” narratives require calm verification)
  • Have I violated the pre-set selling rules (e.g., take-profit line or stop-loss line)? (Undisciplined selling easily undermines the long-term strategy)

IV. Rebalancing Operation Checklist

1. Trigger Conditions

  • Has the preset time interval been reached (e.g., quarterly/annually)? (To avoid excessive adjustments)
  • Does the asset allocation deviate from the target ratio by more than ±5%-10%? (e.g., Stock allocation should be 60%, but is currently 70%)

2. Cost and Efficiency

  • Will rebalancing lead to high costs (e.g., frequent trading fees, taxes)?
  • Am I prioritizing using new capital for adjustment rather than selling existing holdings? (e.g., using new capital to top up under-allocated assets during DCA)

3. Market Judgment

  • Am I adjusting due to extreme market valuation (e.g., Tech stocks are overvalued, shifting to value stocks)? (Requires caution to avoid the “market timing trap”)
  • Am I adjusting the strategic allocation due to long-term trend changes (e.g., energy transition)? (Requires combining fundamental research, not just short-term volatility)

4. Discipline

  • Does the operation follow the “Buy Low, Sell High” logic of rebalancing? (e.g., selling over-allocated assets when they are overvalued, and buying under-allocated assets when they are undervalued)

V. Post-Operation Record (Mandatory After Every Execution)

  1. Operation Type: Buy / Sell / Rebalance
  2. Decision Basis: List the key points marked “Yes” in the checklist
  3. Market Environment: Current PE/PB, interest rates, economic cycle phase
  4. Emotional Score: 1–10 (1 = Extreme Panic, 10 = Extreme Greed)
  5. Review Marker: Record the outcome after 3 months and note whether it met expectations

VI. Ultimate Question (Muttered Before Every Trade)

“In 10 years, will this decision make me richer or will it make me regret it more?” “If I couldn’t trade for the next year, would my operation still be rational?” If a trade cannot withstand a one-year pause, it is highly likely to harm long-term returns.

By following this systematic process, you can reduce emotional interference, avoid common mistakes (such as chasing highs and selling lows, or over-trading), and ultimately achieve stable compound growth through a passive investment strategy. Wishing you successful investing!