Creating a list of stocks to watch is not complicated and actually straightforward
I manage my list of stocks that I watch every day. I am subtracting and adding to them on a daily basis. I also post my bullish and bearish stock watch-lists at least once a week here on SharePlanner. Believe it or not, keeping and managing a well-put together watch list is not all that hard and what I am going to do is outline four simple steps that you can take to creating and optimizing your list of stocks to watch so that it benefits you the most.
Further down in the article you’ll get a chance to download my workbook for creating your own personalized stock screener.
So here’s the deal, every day the market is changing rapidly. Up one day, down the next. Big move higher, big move lower. In the midst of all of that, your watch list changes too. What was a valid trade setup possibility yesterday, is completely off the radar today. That means your list of stocks to watch has to be actively managed, otherwise, it will quickly grow stale in the content and advantage it provides you with as a trader.
So without spoiling the mystery for you, that is going to be my first point:
Actively manage your list of stocks to watch based on your trading style
What kind of trader you are will largely determine how often you need to manage your watch list. If you are a day-trader, your watch list requires active management and screening throughout the entire trading session. For me, as a swing-trader, I manage my watch list every day, while keeping an open eye to new opportunities. Frankly, you don’t have to do the latter as a swing-trader, but it definitely doesn’t hurt and can only help.
Day-trading is extremely dynamic and ever-changing, so your watch list is probably only good for about an hour at best sometimes, because you are looking to capitalize on sudden momentum swings and notable changes in the price action of stocks that suddenly occurs. So you always have to be updating it for new day trading opportunities that arise as well.
If you are an investor though, you don’t need to manage your watch list every day. You are looking for price points where your entry would represent a good value to you. Because you are engaging in fundamental analysis, you are looking to translate that into a reasonable price point where you are able to buy a stock at a cheap price relative to its fundamental value.
As a result, having to update your watch list of of stocks to buy on a daily basis really isn’t necessary as the fundamentals or long-term thesis of why you are looking to buy a stock from a long-term investment standpoint doesn’t change on a daily basis.
Now for me, I am a swing-trader through-and-through. My list of stocks that I am following changes on a daily basis. Don’t get me wrong, there are plenty of carry over trading opportunities from one day to the next. Heck, there are even stocks on my watch list that have been there for months. Citrix Systems (CTXS) was a chart pattern that I was very interested in and was on my watch list and still is for nearly two months now.
What I am trying to get at though, is, as a swing trader the list of stocks that I am following is constantly being added to and subtracted from regularly. Not as frequent as a day-trader who needs to update his list throughout the trading day, but much more than an investor who only periodically needs to updates his.
So know how active you need to be with your list of stocks to watch, so that it doesn’t grow stale with old companies that have no relevancy to your current trading conditions.
Keep at least two separate lists of stocks to watch
You may already have more two or more watch lists of stocks you are looking to buy or short. For me personally, I keep two dynamic watch lists. I have a list of stocks I am looking at buying and a list of stocks that I’d consider shorting. The two are separate from each other and just because one is on the buy list, doesn’t mean it can’t be on the short list. Sometimes a stock can be in a tight pattern of consolidation and could very easily breakout to the upside or even breakdown.
I also keep handy a list of stocks that are in the S&P 500 that I can sort through as well as a list of stocks in the Russell 1000. This gives me two different lists of large caps and small caps. Depending on the market conditions I’ll flip through these charts to see what is actually moving.
I’ll sort the stocks on the list by volume buzz on my TC200 charting software, which shows the stocks are showing an above average amount of volume flowing in for the time frame that I am evaluating the stock chart in.
For the S&P 500, I’ll flip through the first 50-75 stocks or so, and for the Russell I will look at the first 100. I do this every day, actually. If I find any I like, I’ll add them to my respective buying or shorting watch list that I am actively maintaining.
If you are an investor, there is a good chance that you are not going to be interested in keeping a list of stocks to watch for the purposes of shoring because most stocks don’t make for great long-term shorting. But you can still keep multiple watch lists. One could be based on pure fundamental value and another could be a list of stocks to avoid, or stocks that are following a specific investment strategy.
In essence you can have multiple lists for each investment strategy you employ.
But for traders of all types, assuming that you are into shorting (some aren’t and that’s cool too!), I would encourage you to keep two separate lists of stocks – one for shorting and one for buying.
Manage how many stocks on your list you are going to watch
Whatever you do, avoid adding every stock that tickles your fancy to your list of stocks you are watching. It can be easy to get turned on by every setup you find. Avoid that temptation. When you go through your scans initially, look for stocks that have potential in the next week to being in play (speaking of swing-trading here).
There is this ongoing fear with traders that if they don’t add a certain stock to their watch list that they’ll miss the trade and regret it later. First off, trading is filled with regrets, daily regrets even. You have to get past that. You cannot take every trade out there and you can not profit from every stock that moves.
If you’re sole basis for adding a stock to your portfolio is out of the fear that it might do something without you knowing about it, then skip it and move on to the next stock you are scanning for inclusion to your watch list.
The other issue is having too many stocks on the watch list. I have literally seen traders that are tracking 200-300 stocks at a time.
I mean seriously what possible motivation on God’s green earth do you have for tracking that many stocks simultaneously? On a daily basis, I’ll look over 500-100 charts. I am so intimately familiar with most of these charts that I can draw their chart patterns from memory. They are like children to me.
Nonetheless, I don’t want to track 300 stocks on my watch list. When the market is making a move that I like and I want to find the best trade setup for me, I don’t want to sort through hundreds of plays to find one.
For me, I keep about 70-80 stocks max in each list. That means if the market is bullish on the day, I am sorting through about 70-ish stocks to find the one that works for me. I can do that within 2-3 minutes. I want to be able to respond quickly to the market.
And by capping my list of stocks to watch, I am making sure I’m not throwing in any stragglers that don’t really deserve or has a chance to be in there to begin with.
Also, don’t feel that you have to have that many stocks in your list. Some people may only want to track 10-15 stocks at a time. In a raging bull market, I may only have 30-40 stocks that qualify as a bearish setup and vice versa in a bear market because there simply isn’t much to choose from when the market becomes extremely bias in one direction.
The point is, don’t stuff your watch list with hundreds of stocks – it is overkill and counterproductive.
How do you find stocks to add to your watch list
I’m glad you asked. I go through a lot of charts at night. At least 500 or so. For most swing-traders out there, you don’t need to do this every night. I’m obsessed with it, so it is no skin off my back. I think if you spend at least one night a week, like Sunday night and use it as a primer for getting ready for the week ahead, you’ll be amazed at how solid your watch list will be.
I go through a very in depth scan every Friday night (I’ve got quite the night life, eh?). My mind is still fresh from the trading week, and the experience that it has created, as well as my feel for the market. So I use that to my benefit to go through a massive search of stocks. And it gets me prepared for the week ahead AND allows me to enjoy my weekend knowing that I’m already prepared for the trading week ahead.
But when it comes to the scan itself, I actually don’t have a special recipe of what I am looking for. I keep scanning parameters to a minimum. Essentially I use the scan to weed out any stock that I would not trade under any circumstances.
That means stuff like:
Stocks with low volume
Stocks trading in the single digits
Stocks with an extremely low beta (we all need some volatility).
To do all of this, I use Worden’s TC2000. Their charting software is absolutely fantastic and I have been using it since 2007. The software is very easy to learn, and most importantly I can flip through the charts at breathtaking speed.
Using the software, I get back a lot of stocks to check out and I go through them all and find the ones to focus on next week. I add them too my existing list of stocks, and then I go through the entire list, which will usually have about 130-150 stocks in it at this point, and then dwindle it down further to around 70-80 stocks that I will follow on each watch list.
Final thoughts on Developing a Powerful List of Stocks to Watch
Trading is a challenging career or hobby, depending on how you classify it for yourself. Being prepared is a huge part of it, and even more so, avoiding habits that make reacting to a dynamic and ever changing market, more difficult. Keep it simple. Keep your watch list short and to the point. I would encourage you as well, to consider joining the SharePlanner Splash Zone and trade with me each day. I provide daily watch lists of stocks that I am looking to trade, both long and short, and I’ll guide you through the market’s complexities as well. Hope to see you there.