What steps should I take before I sell or trade-in my xbox 360?

The main thing you need to back up would be your save games. Anything else tied to your account (games, DLC, your profile) can be re-downloaded from Xbox Live at a later date if you choose to do so.

To back up your save games, you can use Cloud Saves if you have Xbox Live Gold, or copy them to a standard USB flash drive. The Xbox 360 can use up to 32GB of a flash drive, so that should have no problem holding your save games (I got my 360 in 2009, and all of my saves take up 1GB at most).

Once you have backed up your save games, you should format the hard drive. Xbox Support describes how to do this (scroll down to "Format a Storage Device").