Before I begin trading, one of my top priorities is to make a watchlist.
I mean, how can you trade if you don’t know what to buy???
Sounds pretty simple, right?
Not so fast…
You must have the right process and the right methodology.
First off, let’s talk about why you need a watchlist…
Imagine navigating the vast, often choppy, ocean of the stock market without a compass.
A watchlist is your navigational tool, focusing on stocks that meet your specific criteria, whatever that may be. It helps you stay organized, efficient, and ready to act when the right opportunity appears.
I’ll tell you one thing…The market is insanely hot right now and to take advantage of all the opportunities out there, YOU MUST HAVE A WATCHLIST.
A watchlist shouldn’t be the only device in your toolkit though.
You must always have a well-constructed trading plan.
Don’t know how to build one?
Find out everything you need to know in this article.
Over all the years of trading, I think I’ve come up with a good method for building my watchlists.
I added a particular stock to my list after Apple Inc. (NASDAQ: AAPL) announced its new personalized AI system for devices.
I was pretty sure it would be an AI sympathy play and ride the coattails of AAPL’s big price move.
I wasn’t wrong…
Take a look at Airship AI Holdings Inc. (NASDAQ: AISP) on June 11th.
AISP 1-Month Chart; 1-Hour Candles; SteadyTrade
AISP spiked up 35% in around an hour!
Every trader is different and his or her watchlist should reflect that.
But some rules apply to everyone…
Here are the steps I take to build my watchlist.
Define your criteria.
Before you start adding stocks to your watchlist, you need to define what you’re looking for. This could be based on various factors such as:
- Sector: Are you focusing on tech stocks, healthcare, or maybe energy?
- Market Cap: Do you prefer small caps with high growth potential or large caps with stability?
- Volume: Stocks with higher trading volumes are usually more liquid and less prone to volatile price swings.
- Volatility: Are you looking for steady movers or wild rides with high volatility.
Table of Contents
Utilize Stock Screeners.
Stock screeners are your best friends when building a watchlist. Set your parameters based on your predefined criteria and let the screener do the heavy lifting.
I personally only use one tool for my screening, our StocksToTrade platform.
And it’s much more than a screener…
StockstoTrade also includes stock indicators, charts, and add-on alerts services.
Use fundamental analysis.
Once you have a list of potential stocks, it’s time to dig deeper with fundamental analysis. Look at financial statements, earnings reports, and news related to the company. Key metrics to consider include:
- Price-to-Earnings (P/E) Ratio: This helps indicate whether the stock is overvalued or undervalued compared to its peers.
- Earnings Growth: Consistent earnings growth is a positive sign.
- Debt Levels: Companies with manageable debt are usually safer bets.
But don’t forget the technical indicators.
After filtering stocks through fundamental analysis, apply technical analysis to understand their price action. Look at:
- Support and Resistance Levels: Identify key price levels where the stock has historically struggled to move above (resistance) or below (support).
- Moving Averages: These help smooth out price data to identify trends.
- Volume Patterns: Rising volume can indicate strong interest and potential movement.
Focus Your Watchlist.
Narrow down your watchlist criteria as you identify trends.
Start with the big list and gradually weed out stocks that don’t fit your strategy. The stock market is ever-changing and your list should too.
Review it regularly, daily, weekly, or at least monthly. Remove stocks that no longer meet your criteria and add new ones that do. This ensures your watchlist stays relevant and actionable.
Keep your watchlist updated.
Part of your watchlist review should include staying updated on news and events…
Keep tabs on earnings announcements, product launches, regulatory changes, and macroeconomic factors. A stock that looks great on paper might take a hit due to an unexpected news event or announcement, so stay informed.
We have an awesome service here at StocksToTrade called Breaking News Chat.
It alerts you to company events and announcements, many times before anyone else hears about it, so you can get into the stock early before it goes on the run.
Simplicity is key.
Regularly update your watchlist, removing stocks that no longer fit your criteria and adding those that show potential.
Keep an eye on popular popular stocks to understand why they’re trending. Eventually you’ll have your own list of favorites based on your analysis of volume, catalysts and patterns.
By updating and only following your favorite stocks, you can make your list manageable and avoid feeling overwhelmed. The number I like for a watchlist is around 12-16 stocks.
My final thoughts:
A well-crafted watchlist is an evolving tool that reflects your trading style and goals. Stay disciplined, stay informed, and always be ready to adapt.
But guess what…
Obviously you know I have my own watchlist. I wouldn’t be able to trade without it…
But did you know that I update it weekly and share it with my StockstoTrade Advisory subscribers every Wednesday?
To gain access to this exclusive information and get in on the trades I’m watching, you’ll want to become a part of my STA service.
Learn more about it here.
Have a great day everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade