How to Build a Stock Watch List
Lists are a valuable tool in everyday life. They help make trips to the supermarket more efficient. They’re instrumental in making sure tasks around the house get completed. They prevent us from losing our minds during the holiday season. A good list is also a vital component to any shrewd investment strategy – specifically, a stock watch list. While a stock watch list can be used to target potential stocks that are worth investing in a given time frame, creating a list that will work for you transcends the realm of circling a stock that looks profitable in the long term.
Watch List Defined
As the name suggests, a stock watch list is a list consisting of a list of stocks being scrutinized by a brokerage for the primary purpose of spotting irregular activities. While some of this monitoring can be used to spot stocks that are part of nefarious schemes like insider trading, the intensified viewing could be used to spot breakout stocks that show signs of movement enticing enough to enter.
The successful use of a stock watch list requires a lot of time and effort. While a list can be set to follow on a daily, weekly, or monthly basis, it still requires daily maintenance relating to the ebbs and flows of the market environment to be a truly successful tool. However, with the proper amount of support, a well-crafted stock watch list could potentially pay off some very handsome dividends.
General Rules of Thumb Behind a Stock Watch List
The most basic rule of creating a stock watch list revolves around the amount of time an investor has to devote to the practices. For instance, someone that’s only in the market on a part time basis may keep things simple and track a list of 50 to 100 stocks. That may seem like a lot to the uninitiated until you realize that professionals that are wholly committed to following the market can track between 300 to 500 stocks. What’s more, full-timers can break this list into a tiered system that splits the database into primary and secondary lists, thus forming a priority within a priority.
Regardless of how many stocks you track, it’s important to note that technology plays a vital role in helping you track the stocks on your list. Generally speaking, a typical trading screen will provide information on 25 to 75 stocks. The actual number depends on how the stock info is being displayed, such as charts, news tickers, scanners, and market depth windows. Because of this, it’s important that you get comfortable with using technology – and working with its limitations – as you move along with the stock watch list process.
How Do You Build a Database?
Properly creating and curating an efficient stock watch list database can only be done properly through scrutiny and proactive behavior. In other words, you can’t just pick out stocks that look good and first glance and wait for them to act like you hope they would. It’s a matter of keeping things fluid once the stocks you target have been selected.
A good start to the database will begin with a handful of market leaders or laggards (that is, underachieving stocks) from each major sector and capitalization level. The lists are all over the Internet and can also typically be found in most charting software bundles. You’ll want to steer clear of any stocks that trade thinly during this step because they typically won’t be conducive to active trading.
Once this list has been established, your next step is to create a list of favorites. Chances are, the stocks you target will be popular stocks that tend to be the darlings of the trading world, like Apple or Amazon. These dependable stocks should always occupy a spot on your watch list regardless of how the market swings.
Don’t limit yourself to just a small handful of sectors as you build this list. Take a look at all groups, from utilities to foreign stocks trading as American Depository Receipts. This is part of being proactive; spotting something with upside in a group that normally wouldn’t tickle your fancy during this building phase could put you in a prime position to act if and when they do become breakout stock stars.
Looking for Winning Stocks
Once you’ve built your list, it’s now time to start whittling down the list to include just the stocks that have the criteria to match your trading style. This process will help you craft a lean working list of stocks that you can read comfortably, which in turn can help you make wise decisions when it comes to investing. When you get to this point, it becomes imperative that you perform daily maintenance on the list to look for patterns and setups, even if you’re investing in the stocks on a long-term basis. Most charting packages come with tools that can help you get to this point. The tools also tend to come with the functionality to flag new stocks you may want to add to your watch list, based on the criteria you’ve previously used.
Bear in mind that, while it’s important to make a lean list, you shouldn’t spin your wheels looking for the “perfect” stock. Remember, the market’s volatility is such that a stock that looks like a sure-fire winner one day could be your worst enemy in a week or two. As such, it’s important that your stock watch list consists of stocks that you deem solid, competent performers. This determination is best made through scrutinizing the stocks for patterns or setups that may produce opportunities in subsequent sessions.
A List is Only as Effective as its Creator
Making a list isn’t just about picking a few stocks arbitrarily. It’s about tracking stocks in a way that fits individual investment strategies while at the same time demanding careful scrutiny and proactive actions. It’s a whole lot more demanding than making a grocery list, but in the long term, the payoff can be much more rewarding.