100 tickers on your stock watch list. Bigger the watch list the better? One of them will go up 5-10% today right?
Nope. Many traders mistakenly think having a big watch list means they will be more likely to find more winning trades. This is the opposite of what happens.
Every successful trader I know has a narrow, focused watchlist of usually just 10-20 names (sometimes less) going into the trading day.
Today we will give you a step-by-step guide for building a watch list:
This is something new traders often miss: You should be running scans twice before the trading day starts.
In addition to running scans the night before, you need to do it pre-market, before the market opens at 9:30 EST. Stocks will often have press releases where news that comes out during pre-market trading.
Trade-ideas is a solid scanning software to use. You can also use free sites like https://marketchameleon.com/ or thestockmarketwatch.com to see a list of stocks gapping up and down during pre-market trading (you can use them for after-hours scans also). All you have to do is select the pre-market tab on those sites and you will see most (not all) of the stocks gapping up and down during pre-market.
End of Day Scans
Many of the stocks that you trade the next trading today were “in play” the day before. This is why we always run nightly scans to get a full analysis of all the stocks that made significant moves that day. The type of scans you run will depend on your trading style. A good basic scan to get you started is what we call a “Liquid Gainers/Losers” scan. You don’t even have to use a paid scanner to run this.
All you do is filter by average daily volume and percentage gainers/losers. The change should be +/- 4%, and the average daily volume should be over 500k. It is also useful to filter by stock’s float size and relative volume. Low float stocks on high relative volume are the most explosive.
You can do all of this using Finviz’s screener. This will give you a good 50-100 stocks to sift through from the trading day. You want to run these scans at 8 PM when after-hours trading has concluded.
Quality, Not Quantity: Narrow Your Watch List
You only want to be watching high-quality setups. The best setups are obvious. If it takes you more than 10 seconds to figure if a stock’s daily chart is hot or not, it’s not a high-quality setup.
Stocks should be some of your go-to setups. Not some other trader you follow on Twitter. It is crucial that you focus on stocks that are in your niche.
Half of the battle of becoming a successful trader is knowing what tickers and setups to avoid because you have no edge. Narrowing down your watch list to 10 names will give you a lot more focus and direction in your trading day. But your work is not done yet.
Look Through Every Daily Chart On Your Scan
You cannot cut corners with your watch list. You have to go through EVERY chart from your scans. Look at their daily charts, and figure out if there is a play worth watching for the following trading day. On the names that have hot daily charts, pull up their intraday charts, and see how they’ve been behaving recently.
Did the stock close strong yesterday? Did the stock close weak? Is the stock uptrending or downtrending? Are they trading above or below the daily chart’s moving averages? Is there a recent news catalyst? Are we near-daily resistance or support? What’s the stock’s float?
Rank Your Watch List
Now that you have your watch list down to 10-20 tickers, you need to rank them. Do this at 9 am, so it is less likely you will have to change up the order due to pre-market price action. If you have limited screen real estate, ranking them will tell you which ones to put up on your screens to focus on.
Knowing what the best opportunities are will give you even more focus. You will be watching these names like a hawk for a setup, and then hammer them if it happens. But don’t force trades if nothing on your watch list gives you a setup. There are some days (like today) where nothing on my top watches list sets up, and I trade something else. It is better to be flat on the day than to force trades and be red. Just because a stock is on your watch list does NOT mean you have to trade it.
Build a Trading Plan
Make sure you define all of these things for all the stocks on your watch list:
No plan, no trade. You cannot wing it in trading. Every trade you take MUST be carefully pre-planned.
Once your money is on the line and you don’t have a plan, emotions WILL take over. Write out all of these things before you take EVERY trade, and watch how much your trade management improves.
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