It is impossible to monitor closely the thousands of stocks in the stock market – successful investors and traders restrict their attention to a small number which they place in a stock watchlist.
I maintain and update two watchlists on a weekly basis – one (‘Highly Liquid Stocks and ETFs’) for traders, and one (‘Rule #1 stocks’) for investors. If you want to create your own stock watchlists, see VectorVest Watchlists.
Create and Monitor a Stock Watchlist
This is a vital first step. Currently, there are literally thousands of stocks and ETFs that are traded, some more actively than others. A ‘Stock Watchlist’ is a small fraction of the thousands that investors and traders can decide to pay closer attention to and ‘watch’ for opportunities to make money with, hence the name ‘watchlist’. For reasons outlined in ‘Why Liquidity is Important’, it is wise for traders to restrict their attention to only the most active or ‘highly liquid’ stocks and ETFs. In addition to creating a much easier list of stocks to monitor on a regular basis, restricting trades to this list automatically minimizes two major problems traders face – the ability to sell (‘get out of a trade’) when one wishes and the unavoidable cost of the bid-ask spread (the ”market maker’s fee”). Investors, as opposed to traders, hold their positions for longer periods of time, and may consider stocks that are less liquid than those considered by traders. Nevertheless, even investors are best served by creating a watchlist and deciding when the best time to enter into their investments is. By creating a watchlist of potential stocks, investors can more carefully evaluate and compare the benefits of investing in one versus another. Watchlists can hold many details about each stock in addition to its name and symbol – one may wish to track the volume of shares trades, latest or prior earnings, dividends, growth parameters, etc. These details can easily be obtained for free from the Finance sections of free websites such as Google and Yahoo, alternatively, there are many software programs that have the basic features that the free sites have, but also have other sophisticated features not found on the free sites. I use VectorVest to create and monitor my watchlists, but individuals should take the time to review a few to decide what works best for them based on their needs and effort they wish to put into their work. To use a couple of examples from everyday life, folks use a dishwasher for the convenience and ease of washing dishes that they wash by hand at the sink. Similarly, folks may use a car or other form of transportation instead of walking to where they wish to go. If one has one cup to wash or a short distance to walk, it may not make sense to use the dishwasher or car. This is an individual decision.
In ‘What to Trade’, you will find two watchlists that I maintain and update on a weekly basis – one (‘Highly Liquid Stocks and ETFs’) for traders, and one (‘Rule #1 stocks’) for investors. If you want to create your own stock watchlists, see VectorVest Watchlists. I use VectorVest to both monitor my stock watchlist as well as for analysis using technical indicators such as moving averages, MACD, Stochastics, etc. Visit ‘Investing and Trading Resources’ for more on books to read and websites to visit.
Once you have created your stock watchlist, ‘Wait for a High-Probability Trade Setup‘.