Chapter 05 · 5 min
What the Funnel Tests
A chart can reveal supply and demand, but it cannot explain the whole company. A beautiful breakout can belong to an illiquid business with no credible catalyst. Strong fundamentals can belong to a stock whose valuation already assumes perfection.
The funnel prevents one attractive fact from becoming the entire thesis. It applies the same sequence of questions to every candidate, including the questions that are easiest to ignore when a stock is moving fast.
Four layers of evidence
Tradability, dollar volume, relative volume, close location, trend, and repeat demand test whether the move is supported by a functioning market.
Catalysts, revenue growth, earnings expectations, margins, and ownership help distinguish a change in the company from a change in mood.
Sector-adjusted valuation matters because a good company can still be a poor setup when its price leaves no room for disappointment.
Dilution, offerings, low float, extreme volatility, and weak cash generation can dominate every other signal.
Read blockers before strengths
A compelling catalyst or fast growth can make a stock exciting, but a hard failure in liquidity, valuation, or structural risk can still make the setup unsuitable. Start with “Why this result?” and its primary blockers. Then review supporting evidence.
This ordering feels unnatural at first. People prefer to collect evidence for an idea they already like. Reading blockers first reverses that habit. It asks, “What could make this unworkable?” before asking, “How good could this become?”
Why not use one score?
A single number looks precise, but it can hide the reason a stock qualified. Two companies can both score 75 for completely different reasons: one may have exceptional growth but extreme valuation; another may be inexpensive and liquid but lack a meaningful catalyst. The stages preserve those differences. The final classification is a summary, not a substitute for reading the evidence.
What the classifications mean
Alpha Candidate means the available evidence passed required screens and accumulated enough confirmation to justify deeper work. Early Discovery may reveal an interesting business before momentum fully confirms. Needs Confirmation means the thesis remains incomplete. Filtered Out means a mandatory blocker is active now—not that the company can never become interesting.
The funnel does not predict the future. It organizes evidence, applies consistent standards, and makes trade-offs visible.
For educational and research purposes only. No score or classification guarantees future performance.