There are thousands of stocks that you can trade in the financial market. In the US, the number of publicly traded has risen to over 4,000. Globally, there are over 10,000 stocks.
As such, for a trader, it is relatively difficult to find the best stocks to trade. Therefore, most traders use a stock watchlist to identify the best stocks to trade.
Here are a few tips to use a good stock watchlist and generate more profits.
What is a watchlist?
A stock watchlist is a group of stocks that a trader and investor is focusing on in a certain period. For example, a trader can create a watchlist by selecting a number of companies that they are interested in.
Another type of a watchlist is one made up of companies that are seeing substatantial moves in the market. In most cases, this watchlist is made up of companies that have the potential of having substantial moves when the market opens.
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A good day trading watchlist should always have a list of companies and the reasons why they are seeing strong moves. At DTTW™, we have one of the best free watchlist (via TraderTv Live) that is sent every morning before the market opens.
One of the reasons why this watchlist is popular is that it provides accurate and well-researched reasons why stocks are showing strong moves.
Another reason is that it is followed by a live trading session, where our experienced traders execute trades live on camera.
Tips for using a stock watchlist
You can sign up for a watchlist and read what is being reported, but this is definitely not the best way to take advantage of this info or enter a trade.
How then to do it? There are some simple steps to follow to increase the effectiveness of our selection and avoid opening a trade for the wrong reasons.
Find the reasons for movements
One of the most important tips for using a stock watchlist is to find the reason why a stock is rising or falling. Fortunately, in most cases, it is easy to find these catalysts. For example, you can just do a Google search and find the reasons for the move. Some of the top catalysts are:
- Earnings – In most cases, companies that publish their quarterly results tend to show substantial moves before the market opens.
- Management change – At times, the change of a company’s management can trigger substantial moves.
- Investigation – When a company is investigated by a key regulator like the Federal Trade Commission can lead to a sharp decline. Private investigations like a short report can also sink a stock.
- Court victory – At times, a court victory can lead to major moves in a stock.
- FDA approval – A biopharmaceutical company can see substantial moves when a drug in its pipeline is approved by the FDA.
A good example of a watchlist is shown in the chart below. As shown, Huadi International is the top gainer, having gained by 90%. A quick Google search shows that the stock popped after the company published strong results.
In addition to a Google search, you can use tools like Webull and Yahoo Finance to find out the reasons why the stock rose.
Knowing the reason why the stock rose or plunged can help you a great deal in determining whether it will continue moving in that direction or plunge. For example, a stock that rises sharply after an M&A deal might have little upside going forward.
Identify support and resistance levels
Another important tip for using a watchlist is to identify support and resistance levels. A support is defined as a floor where a stock struggles to move below while a resistance is a level where it struggles to move above.
Most traders use these levels to determine whether to buy or sell an asset and where to place a stop-loss and a take-profit.
One way of doing this analysis is by using a multi timeframe analysis. This is a type of analysis where a trader looks at key levels across various timeframes. These level will help you substantially know whether to buy or sell the asset.
As you identify the support and resistance points, always include the concept of volume in it. In most cases, a major move that is not supported by volume tends to lead to a major reversal.
Keep it simple
Always keep your watchlist as simple as possible. For example, instead of following hundreds of companies, just come up with a watchlist with as little as 10 companies and do analysis on them.
Focusing on so many companies will often lead to confusion. Also, it will make the trading process long and complicated.
In addition, as a trader, you don’t want to know too much about a company. This means that you should not do a lot of fundamental analyis on it such as doing valuations and competitor analysis. These in-depth analysis are only important for investors who focus on long-term holdings.
Instead, as a trader, you should always focus on key details like the trading volume, key support and resistance levels, and the reason for the price action. With this information, it is relatively easy to open and close trades.
Finally, we highly recommend that you incorporate your trading watchlist with TraderTV. TraderTV is one of the most active YouTube channels in the industry with over 300k subscribers.
It is a useful channel where a DTTW™ trading floor members discuss the key issues of the day and then execute trades live.
This channel is ideal for both beginners and experienced traders. Beginners will learn more about how to trade while experienced traders will get new trade ideas.
In this article, we have looked at what a trading watchlist is and identified some popular strategies to use. We have also highlighted some of the top reasons why you should use TraderTV in your trading activities.
External useful resources
- 5 Simple Tips to Build and Maintain Your Daily Watchlist – Stocks To Trade