Introduction:
In doing my research for this post I found that most information about setting up a watch list on the internet was focused on the actual creation of the list. There were infinite number of articles and papers on how to physically set up the list, but there were no resources that spoke about what I should be put on your list and why. Anyone can make a list. You can do it on a piece of paper if you need to. It’s what’s in the list that makes the difference.
How is this article different?
This article is written to show you not only how to make the list, but also what to put on the list and why. Read on and learn how to properly create this indespensible tool that will become your best trading partner over the coming years.
YOU CREATE A STOCK WATCH LIST BY FIRST IDENTIFYING WHAT TYPE OF TRADING YOU ARE ENGAGED IN. THEN YOU DETERMINE WHAT TYPE OF STOCKS FIT THAT TRADING STYLE AND FINALLY YOU BUILD YOUR LIST WITH THE TYPE OF STOCKS YOUR TRADING STYLE REQUIRES
Table of Contents
- What is a watchlist?
- Where to create Your list
- What is your trading style?
- What data do you need?
- What type of stocks will you need?
- What are you watching for?
- Where to find the stocks?
- How do I Use my list?
What is a watchlist
A stock watch list is just what name implies; it is a list of stocks you create to refer to when you are looking for high probability trading situations. While a watch list is one of the simplest and most basic tools a trader has, it is also one of the most important tools. As you progress in your trading, you will come to look at your watch list as you best friend and confidant.
A watch list must be used in the proper manner or else most or all of its benefits will be lost. It must be built based on the specific criteria you identify as critical to you becoming a profitable trader in the style you want to trade.
A stock watch list made with no plan and purpose is worthless
Use this article as a guide and you will be well on your way to developing your watch list in a way that will become a very powerful tool in your trading.
Where to create your watchlist
The very first thing you must do is to decide where you are going to build your list. This is entirely up to you. It must be easy and convenient to use, or you won’t use it. We have identified three main places to build your list as follows:
- Use the tools provided in your trading account
Most trading accounts come with a variety of tools for you to use. One of them is usually a watch list and we suggest you check their capabilities and see if this is right for you. - Use tools provided in independent trading platforms
Independent trading platforms like Tradingview.com are a great place to build your watch list. - Use Google Sheets (or excel)
Google sheets is just like XL Spread sheets. The big difference is that Google Sheets interacts with Google Finance and you can import stock market data feeds from there. This gives you the ability to create as many dynamic watch lists as you want, and they are live with real time market information. The process of doing this can be be seen in a video on by Brian Turgeron on YouTube at the following link https://youtu.be/cm5ZLtPFisc Check it out as it has a lot of potential for people who want to put in the time.
What is my trading style?
Before you start looking for your stocks, you have to first decide on the type of trading you are going to be doing. Different types of trading require different types of stocks, so it is imperative that you decide what type of trading you are going to be doing. Considering that, let’s quickly look at the different types of trading you will be picking from and the type of stocks that are appropriate for it.
| Trading Style | Types of Stocks |
| Day Trade | Large Cap Stocks |
| Swing Trade | Large Cap; Mid Cap; Growth Stocks (In strong bull markets) |
| Long Term Trade | Mid Cap; Growth; Value |
Next, let’s better understanding the types of stocks you are looking for:
| Stock Type | Description |
| Small Cap | Market Capitalization $300M to $2B |
| Mid Cap | Market Capitalization $2B to $10B |
| Large Cap | Market Capitalization $10B and above |
| Growth | Stocks of companies that have small capitalization, accelerated income and revenue growth. They usually new products, services or business models |
| Value | When you delve into the world of value investing you walk directly into the world of Warren Buffet. Value investing involves finding stocks with good positive revenue and trading at very low multiples of that revenue. This is called price to earnings ratio or P/E Ratio. For this type of investing, the lower the better on the PE Ratio. |
What data do you need?
The data you need for your watch list need not be complicated. In fact, the simpler the better. The first thing I emphasize to my trading students is that they must make sure to have a place in their watch list where they can record the date and price that they first looked at the stock. I can’t say this enough. If you just create a list and look at it, it will always be new, every time you look at it. This is not what we want. We want to develop a relationship with the stock and that starts with your initial look at it.
As respects the rest of the data to be tracked here is a list:
- Stock symbol
- Last Trade Price
- Change in Price (day)
- % Change
- Today’s price range
- 52 Week price range
- Day Volume
- Average Daily Volume
What are you watching for?
What good is a watch list if you haven’t identified what you are watching for? Are you watching for stocks to hit certain prices? Are you looking for the formation of specific chart patterns? Are you looking at the support resistance points? If you don’t identify what you are looking for your watch list will be rendered useless.
Where do I find the stocks?
Stocks in an index: this is the process of taking a specific stock index like the Dow Industrials and using the individual components as a watchlist. Take some time and study the different index’s that are out there and see if one of them directly correlates with your type of trading.
Stock Groups: stocks in the stock market tend to trade with other similar companies. I am talking about major business groups like Semi-Conductors or Pharmaceuticals. Once you identify these groups finding other companies in the groups is quite easy. I use Tradingview.com for my charts and it is a great place to explore
News: stocks that are mentioned in your favorite financial news programs are a good source of stock names. Once you have them you need to do your due diligence. Get to know everything you can about the stock and the industry group they are in.
IBD: Investors Business Daily has the best stock research, hands down. I don’t much like the stories they print, but as their ranking system and the stocks it identifies there is none better. Check out their “Stocks on the Move” section at investors.com to see this in action. This is available without a paid subscription and gives you tremendous resource to find stocks to trade.
I have to warn you that the stocks it identifies are true growth stocks that have tremendous potential. Please do not use this to identify your stocks if your form of trading is not good with growth stocks. The movement and speed of these stocks can be amazing or devastating if you are on the wrong side.
WSJ: The age-old Wall St. Journal can be a great place to find stocks to trade. They are one of the very few sources that have stayed out of the political weeds as much as possible and try to stay focused on the market and companies in it.
How do I use my list?
You watch list should become an intimate part of your trading schedule. Get a copy on your phone and refer to it continuously. Remember you are looking to develop a relationship with the stock. You can’t get to this level just by looking at it from time to time. Study it, look for patterns. Look for correlations with other stocks in the group. Look for correlations with the market indexes. Watch for price levels the stock has trouble with. Finally look for the things we discussed in the previous section called “What are you watching for?”
Key Points To Remember
- A stock watch list made with no plan or purpose is worthless
- Create your list in a place that works best for you
- Your trading style will determine what type of stocks you put on your list
- Keep the data you are tracking as simple as possible
- Always define what you are watching for
- Use many different data sources to get ideas for you watch list
Conclusion
So there you have it, a quick step by step guide to putting together a stock watch list. We reviewed what a watch list is, where to create it, how to fill it with stocks and how to use it. The stock watch list is one of the most important tools you can have as a trader. The final key point here is that you have to adapt it so that it works for you.