Building The Best Stock Watchlist
Volatile market environments require more than strategic planning as traders maneuver potential pitfalls. In truth, traders should build more than just one watchlist.
Traders can benefit from a dual — or even a triple — watchlist.
I can’t stress the importance for traders to determine the market, sector, and even stock structure before planning strategies and setups. Watchlists allow traders to set specific criteria to identify potential trends and trade setups. This can make navigating volatile markets easier for even the more experienced traders.
In this quick blog post, we’ll discuss how I setup my watchlists and pick the best stocks!
Watchlists for Trending Markets
Traders should consider whether an asset is consistently moving in bearish, bullish, or chop patterns. When a tendency has been identified, this asset can be added to the appropriate watchlist. When traders categorize stocks according to price action, this makes it easier to identify the best setups.
Whichever market environment we find ourselves in, watchlists enable us to find buy-the-dips and short-the-rips setups and, when possible, to make trades in the right direction.
Even more, watchlists can help traders avoid searching for market trends in all the wrong places.
We can talk about what we “think” might happen all day long. But, Ultimately, we should be trading what we place on our watchlists. We often talk about finding an edge in the markets. Having a watchlist is almost like a cheat sheet. We already know where to look. This will allow a trader to quickly identify a setup and take action while the rest of the market struggles to decipher the never-ending news cycle and sentiment.
Options traders can build a watch list that lets them run through the options chain for stocks they want to trade. This watchlist should include both long and short trends that are looked at through unbiased eyes.
When traders watch price action and use their watchlist as a guide, they’re less likely to succumb to emotional volatility that plagues both novice and experienced traders alike.
Even more, watchlists protect valuable time.
Daily Preparation Saves You Time
Traders who keep their fingers on the “pulse” of the market often have a better sense of the overall market direction. Becoming familiar with individual stocks, groups of stocks, sectors, and industries can help you see the big picture.
This becomes especially relevant around earnings. Since breaking news updates and company announcements can influence market direction, the media and the economic calendar can be useful for trading plans and strategies.
Traders who work on their watchlist daily, as well as their overall plan, are likely to spend less time chasing stocks and more time making money.
So Many Flavors
Without a way to cull stocks that have no catalyst, constructing an impressive watchlist can feel like standing in an ice cream shop with 31 flavors on a hot summer day. Each flavorful concoction is a bit enticing, but even choosing the top three for a banana split can seem overwhelming. The system I use to select ice cream on a hot day and to build a watch list is the process of elimination.
Certain sectors and industries might be eliminated immediately. There are some I won’t consider trading. Biotech, for example, is not an area in which I like to get involved. I’m also not going to be trading utilities because that’s not an area that sees much movement. When you identify what sectors and industries you won’t trade, it makes building your watchlist that much easier.
You may start with stocks, sectors, or industries that you have already traded or are familiar with. The first step is to identify stocks that are trending in one direction or another. I don’t like erratic stocks that bounce back and forth.
Most often, I trade using moving averages, so I need a stock that respects moving averages (queue Aretha Franklin’s RESPECT.)
First, This means I have to be sure it trades smoothly.
Second, I check the volume. I don’t want to trade stock with only 100,000 shares traded per day; we need LIQUIDITY.
You don’t want to be the only person trading the stock. You want to make sure that a lot of other people know about it, are interested in it, and it’s on their radar.
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What Has A Stock Done Lately?
Here are a few things that I look at when analyzing a stock for my watchlist:
- Where is the stock trading in relation to it’s past performance
- Is the stock range-bound, and if so, for how long?
- Is the stock trending or popular?
- Does it have any volume?
- Doe the stock have any potential energy left?
Ideally, traders should be looking for a stock that is heavily traded and still has a lot of potential energy left. That’s the whole point of trading the stock. We’re looking to take advantage of bigger-than-expected moves.
If you just find a stock that’s been going sideways for a year or two, it’s probably going to keep doing just that. The chances of it breaking out are fairly low.
Remember, if you take the time to buy it, make sure you buy something that has an upward trajectory.
How Is The Sector Performing?
Just as we should be identifying stocks that are on the move, traders should also pick stocks from sectors that are “hot and energetic.” Traders want to take into consideration sector rotation, or money flowing in and out of sectors according to the economy and sentiment.
Sectors often move higher or lower as money flows out of one sector and into another. This can happen in different time frames, but ideally, traders should be looking for the STRONGEST sector and pick from the strongest stocks within that sector.
Is There An Indicator For That?
Traders can use relative strength (RSI) to help identify the strength of a specific stock. Also, traders should take into consideration stocks that have a higher trading volume and shy away from stocks that have low volume.
In a nutshell, traders should be looking for strong sectors and strong stocks within those sectors and build their watchlists accordingly. Some further detective work can prove to be beneficial if traders keep their ears to the ground and listen to what stocks other traders are discussing.
There are many websites that can be used for this. Twitter, Fintwit, Tradingview, and other similar websites will show what names are trending and how many people are talking about them. This can be useful information when building a stellar watchlist.
I used this very strategy to make a large profit some time ago. I found out which stocks were the most exciting and most interesting at the present time and set up trades accordingly.
I Have A Watchlist, Now What?
Once your watchlist is built, and you have a few names that you like to look through, don’t expect a trade right away. Now you have to build an understanding of these names.
Do you know why they call it a watchlist? Because you actually need to watch it.
You study the stocks on that list and become intimately familiar with their “personality”. Stocks tend to move in certain ways, in waves, and in groups. Build a basket of names that you will start watching, and then look for opportunities to get into a move. Remember, though, that you shouldn’t assume that your entire group or watchlist will trend in a specific direction just because it’s on your watchlist.
After your watchlist is set up, spend some time making sure all of your trading rules are in place. Identify the types of trades you’re looking for and let the indicators tell you when a move is likely to happen. You’re likely to be more profitable if you trade WITH the market than against it.
Effectively, 80% of the names are going to go in the same direction as the market.
When you have determined your sector, your industry, and then your stocks – make sure that they are ready to move or are setting up when the market is amenable to that as well.
No Mo’ FOMO
One way for traders to limit the fear of missing out (FOMO) is to keep looking for new opportunities. I like to do this by seeing by using indicator scans. I like to build my watchlist and work through it daily as I mentioned before, I don’t trade stocks that are choppy. I take those out of my list as I keep scanning for new stocks. I’m looking for the next stock that has good energy.
I find that as I continue to work through my watchlists, I understand how the individual stocks are performing. Once I know my list, I trade those names over and over – and over. This way, I don’t get FOMO. I know there are so many potential trades at any one time that I’m not chasing after moves that have already happened. That is the power of a watchlist.
These are a few tips I use to build watchlists and the strategies I use to employ them in my trading career. It has worked well for me, and I hope it will work well for you too.
Using An Indicator Based Scan On Your Watchlist
TG developed the Moxie Indicator™. Combined with his down-to-earth Moxie Stock Watchlist, he is able to look beyond price and identify big moves before they happen. TG starts each day studying this watchlist — which is designed to read the profit potential of any stock. TG has a long history of studying the nuances of the stock market.
TG Watkins is the Director of Stocks at Simpler Trading, where he delivers a pinpoint process to identify straightforward setups on stock charts regardless of market direction. There is nothing more valuable at Simpler Trading than our biggest asset — our people. The information, resources, and experience that our traders deliver reach around the world daily.
TG attended his first two-day stock trading seminar at the age of 12 with his father and never forgot that day. After graduating with his mechanical engineering degree, TG earned his Series 6 and 63 licenses to begin his career with New York Life. Inspired by his early exposure to the stock market, TG left the corporate world and went on to develop his proprietary Moxie Indicator™ and trading system.
TG’s trading system and simple chart checklist have been put to the test in recent years with the pandemic-confused market. These tools guided him to double his account in 14 months from $67,000 to $136,000, and he exploded a smaller $6,000 account to $20,000 in even less time.
TG is a veteran trader who has navigated rough markets and understands the erratic ebb and flows across the market isn’t always what it appears. Even more, he is wary of major corrections that are necessary for massive, multi-year bull markets.
TG shares his insights regularly in the Options Gold room, across multiple social media channels, and in news media appearances. He dives deeper into the markets with Moxie Indicator™ Mastery within Simpler Trading. Traders follow TG’s expertise and personalize their watchlists because they want to know how to quickly target the best trades without having to manually track each stock.
Thanks to the trading lifestyle and his commitment to that childhood dream, TG enjoys his second passion shared with his father — flying. TG is a licensed pilot who is a believer in following dreams and says e one should learn the skill of trading for their own benefit. Also known as the “Profit Pilot,” in his free newsletter, TG continues to fly high even in the heavy winds of uncertain markets.
A: All traders need to maintain watchlists regardless of which scanners and indicators they use. Tools are useful as a means for technical analysis, while a watchlist is a finely curated work of a trader.
A: A honey badger stock can be moving against the market but still set up nicely for a trade. When this is the case, study the stock to make sure it meets all of your trading criteria before entering a trade.
or for a reason, stocks that receive attention from the media can have a negative result for the shareholders. For this reason, understanding why a stock is making headlines in the first place is more important.