Brandon Wendell, CMT
Brandon Wendell
A common question posed by many new and experienced traders and investors is, ‘What stocks should I trade?’ There is never a quick and easy answer because the answer will be dependent on what your goals and risk tolerance are. Traders should start to answer this question by creating a watch list.
Why Have a Stock Watch List?
Traders should have a stock watch list simply to make trading and investing much easier. There are over 5000 stocks available to invest or trade in making it impossible for a person to try and scan through manually in order to find opportunities. Instead, narrowing the focus to a smaller group of stocks makes the task more manageable. A stock watch list allows traders to focus their attention on stocks they are particularly interested in.
There are two types of watch lists that a trader should create, a general watch list and an active watch list. The general stock watch list is used to identify what stocks are in their financial universe. This general watch list should contain all the stocks that they would consider investing or trading in. If the company isn’t on a trader’s general stock watch list, it doesn’t exist in their financial world.
The second list is the active stock watch list. These stocks are exhibiting conditions and patterns that would lead a trader to soon enter a position on them. Stocks move from the general watch list to the active watch list when the stock price is nearing an entry level or a good opportunity is identified on that stock. The active stock watch list contains stocks that are about to be traded.
Most trading platforms have a stock watch list function so traders can create their own watch list and even customize the columns for the characteristics they are looking for in a stock. If a stock watch list feature is not available on brokerage’s platform, there are plenty of free ones.
Criteria for a Good Stock Watch List
Not all stocks are the same. They all have different characteristics which lead to them trading in different manners. A stock with low volume could have gaps that form on the chart intraday, not just overnight. This adds unnecessary risk for someone buying or shorting the stock.
Other stocks may be too expensive or too cheap. Expensive stocks are difficult to profit from because traders cannot buy as many shares. Small position size means small profits. Cheap stocks can also offer problems. While it is possible to afford to buy a large number of penny stocks, everyone else can afford them too. Large purchases can lead to large, unpredictable price swings.
This is where the general stock watch list comes into play. Traders can scan the entire universe of tradable stocks to narrow down their watch list to those that have enough liquidity, volume, and a decent price level. Those stocks are then added to the general watch list and should be the only stocks they focus on.
How to Scan for Stocks to Trade
Once again, this feature is usually available on brokerage trading platforms. Though every platform is slightly different, the layout is similar.
If a scanner is not available, Finviz, Yahoo Finance as well as other sites offer free stock scanners. Traders will have to determine what specific criteria they want to search for and input that information. In the Core Strategy course at Online Trading Academy, we teach our students minimum liquidity (average volume) levels to look for and also the price range (minimums and maximums) that are recommended. We encourage students to disregard penny stocks (those priced under five dollars) and those that would require a large account to buy any meaningful number of shares. The goal is to be safe while having the opportunity to realize positive results.
Conclusion
Trading and investing can seem difficult and cumbersome but if done correctly, it really isn’t. Narrow your stock universe by scanning and creating a stock watch list. Simplification of the process is a key element to trading and investing consistency.
Read the original article here - Creating a Personalized Stock Watch Lists
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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