Many active traders create what they call a “watch list,” which is simply a list that records the daily share prices of a group of stocks over time.
It can be done very simply with a spreadsheet, or even a notepad and paper, although there are numerous software programs and utilities that assist in creating a watch list. Some online brokerage houses provide this service either for free or for a minimal charge.
Your watch list isn’t necessarily a list of stocks you have already purchased; rather, its purpose is to get a good “feel” for stocks that you are considering purchasing. An active trader that has for example, an average of ten positions at any given time, will usually be watching several stocks as well so that when one position is sold, another one can be purchased immediately from the watch list. This avoids a situation where an investor has too much cash in his or her trading account at any given time.
Using a watch list is convenient for several different purposes; for example, suppose you have researched a company that you consider to be sound, and to have good potential. However, the stock price is currently overvalued, and you want to wait for a more opportune time to buy. The watch list will track the share price, and generate charts to show you the general trend–so you can predict when would be the best time to purchase the stock.
Create a watch list first by researching fundamentals and looking at technical analytics and charts. Once you find companies you believe to have potential to meet your personal goals, place it on your watch list and take note of the price fluctuations over time. The goal is to understand when a stock is at a low point; when it reaches this low point then it’s time to buy. Also, since you have already done your research and noted historical trends, you will probably have a good idea of how high the stock will go, and when would be the best time to sell.
You may have noticed for example, that a particular equity has a range of about a dollar, ranging from a share price of between nine and ten dollars. Your strategy then is to watch the stock until it drops to nine dollars, buy it, and then wait for it to go back up to ten and then sell.
In general, try to have as many stocks on your watch list as you have positions for. It’s not always easy to keep track of too many positions, but having ten active positions and watching ten others is usually doable with the help of a few simple software tools and utilities.
Information is for educational purposes only and is not be interpreted as financial advice. This does not represent a recommendation to buy, sell, or hold any security. Consult your financial advisor.