What to check before buying a stock: a checklist of 10 checks, from the business to the stop

Before buying a stock, check three things: what you're buying (the business and its price), why now (the trend and momentum), and where you're wrong (the stop and position size). Most big losses come from skipping the third check: buying a good stock without knowing in advance at what price you'd admit the thesis failed.

The checklist here isn't meant to say "buy" or "don't buy." It's meant to make sure you haven't forgotten something, and that the decision is made before money is on the table, while you can still think clearly (more on this inTraders' psychological mistakes).

Part A: What you're buying

• 1. What the company does and how it makes money. If you can't explain it in two sentences, it's hard to understand what will move the stock. Inour stock pages for many companies, there's a paragraph in Hebrew about what the company does and what typically affects it.
• 2. The business trend. Whether revenue and profits are growing, stable, or shrinking, and whether the company has more cash than debt. When we have the latest quarterly report, the stock page summarizes it in simple Hebrew.
• 3. Price versus earnings. P/E ratio A high multiple means the market already expects a lot. That doesn't disqualify a stock, but it means a small disappointment can be costly.

Part B: Why now

• 4. The main trend. Whether the price is above the moving averages of 150 and 200 days. Below them, buying is against the trend.
• 5. Momentum. RSI Above 70 means the price is stretched and entering means chasing it; below 30 it's weak, and a low price can keep falling.
• 6. Support and resistance. How much room is there until the resistance above the price. If it's close relative to a normal daily move (ATR), the potential profit is limited.
• 7. Volume. A breakout or rise without volume above the average is more suspect than a rise with volume.
• 8. Upcoming events and market condition. Whether there is quarterly report in the next two weeks (risk ofgap who skips the stop), and whether the S&P 500 itself is above the 200-day moving average (Market regime).

Part C: Where you're wrong

• 9. The stop. The price at which the thesis has failed, usually slightly below the nearest support. If support is very far away, the stop is far, and the position should be small. See How to set a stop loss.
• 10. Position size. Decide how much of the portfolio you're willing to lose if the stop is hit (for example 1%), and calculate the position size from it: 1% divided by the distance to the stop in percent. A stop at 5% below the price ⇒ a position of up to 20% of the portfolio. There is Position size calculator.

And what to do when a check fails

Almost no stock passes all ten checks. The goal isn't a perfect score but knowing what you're giving up. A failed check can lead to one of three decisions: skip the trade, wait (for example until after the earnings report, or until a pullback to support), or enter with a smaller position because the risk is higher.

What not to do: change the check after the fact so the trade passes. If you decided not to enter two weeks before an earnings report, that rule applies even when the stock "looks excellent."