A Watchlist Short Story That Improved my Trading

A Watchlist is an essential tool for any trader, as it is the place we keep interesting stocks, new ideas and other instruments that allow us to understand the market. Over my journey as a trader, I have learned to appreciate the importance of this watchlist as it is the first place I go to look for orientation when the markets are moving.

At the beginning, my watchlist was very random. It was one big list of about thirty stocks that made no sense. Over a short time that list grew to about a thousand stocks as I kept adding the next Million Dollar idea from every article I read on the internet. In the end when I went through my watchlist I had no idea what half of the tickers were nor why I put them there in the first place. These are not good watchlist practices. 

In any case, I got better, and finally have arrived at a place where my watchlist, or should I say watchlists help me rather than confuse me. 

The first thing I did was that I divided my watchlists depending on the reason for having a stock. For example, I like to have the $SPY ticker on my watchlist because it gives me an overall idea of the market trend, not because I want to trade it necessarily. Another example would be that I like swing trading, so I would have another watchlist with mid to large cap companies that are on a general uptrend, are good companies and are optionable.

So in essence, I applied a practice that I would group stocks or symbols based on the overall strategy or purpose, and created a watchlist for each of my strategies. The current watchlists I have are:

  1. An ETF watchlist: I have broad indexes here, and I use it to have a broad sense of market direction. I have things like the $SPY, $QQQ, $DIA, $IBB, $IWM. I would rarely change these as I am already accustomed to looking at them everyday. This is for information mostly.
  2. Legacy watchlist: This is a watchlist, with a similar purpose as the ETF, and is where I put popular legacy or blockbuster names in order to see overall movements of latest trends. I’ll have things like $AAPL, $MSFT, $GOOG, $BAC, $JPM, $F, $BA, $TSLA, $CVX, $AMZN, $FB, $BABA, $PG, $UNH, etc. This one if for information mostly as well.
  3. Waiting for Price Drop watchlist: These is where I put stocks that I would like to buy and am waiting for a pullback. This could be where I put the weed stocks, an interesting upcoming tech company, and things like that. I would also sell puts on some stocks in this watchlist to generate an income while I wait for them to drop.
  4. A Swing Trade Watchlist: Basically this is a watchlist where I have strong uptrending mid and larger cap stocks. I keep tracking them and whenever I see that one has a big drop or a couple of red days in a row, I will start to monitor to enter a trade. So I’ll make swing trades on stocks that I feel comfortable with and have a lot of coverage. I keep updating this list weekly.
  5. A Biotech Watchlist: I personally like to play the biotech sector, so this is where I would keep biotech stocks that have an upcoming catalyst to monitor and play the runups.
  6. Random Idea Watchlist: this is where I will put random ideas like micro caps or a hot penny stock. Unusual Options or Dark Pool ideas I put them in this watchlist as well.

Some watchlists are for information only, while others are for monitoring potential trades or investments.

Another thing that I have found helpful for trading is to have my research done from the day prior and while the markets are open work from my watchlists. If I have done my watchlist in a proper manner, then I should have no problem finding at least one opportunity that I like from my watchlist to trade. So I am constantly monitoring the price action of stocks that I already understand and know, rather than being all over the place when the market opens.

Important to note that more experienced day traders who work off alerts, and activity from a live scanner will have less of a need for watchlist. Although, the equivalent could be considered presets, filters, or screener criteria. In the same way as with a watchlist you learn patterns on the results that your criteria return and allows you to act efficiently and profitably.

Having a watchlist is like managing a football team. You have been practicing the plays studying them over time and against different scenarios. Now its time for the qualifying for the championship. We would have studied our strategies to every single detail and we would’ve talked about different scenarios that we could encounter and how we are supposed to react on the field real-time. There was no time while during the match to “figure out” our play and what we were going to do. It’s the same with trading; when the markets are open it is no time to be figuring out your strategy. We must have already in mind what we wanted to do and simply be concentrated on executing our strategy, rather than wanting to come up with it. The stocks you watch are like your players who you know very well and understand how they react to different situations.

In summary, when starting out rather than trying to all the possible ideas in the market, one should just focus on the players they know the best while the markets are open (i.e. the ones in their watchlist), and do research on them, take them out or add new one in when the markets are close. While in the middle of the match (when markets are open) it is not a time to figure things out, it is a time only to execute.

Thoughts of a Psycho Trader…

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