I received a great question this week regarding the use of watchlists – and how this differs from the use of stock screeners to run scans. I am sure that each of you has a preference but for me I find them equally as important to my trading process.

Now for the reasons why Watchlists are so important:

1. Over time you gain more intimate knowledge and experience from stocks on a watchlist because you pay a great deal more attention to them on a daily basis. This gives you an edge.
2. Because of this more initiate knowledge, you will have a better feel for how a stock behaves when compared to the market overall. You should also better understand when a dip buy is more appropriate for example.
3. Having watchlists will provide some additional benefit, like having a few “tells” in a list that become great market guides for you in your trading.

This is likely not all the reasons, you may have others, but hopefully it helps make a case for watchlists being a part of your trading process.

Now on to why stock screeners should be part of the arsenal:

1. A key reason to utilize stock screeners is to find stocks that are starting to draw interest from a larger pool of traders/investors. An example would be to scan for stocks that are approaching the $5 or $10 price range as the will come on to the radar of a larger pool of buyers.
2. As with many things in life, your watchlists can become stale so it is always important to rotate out the bottom performers with new or up and coming stocks.
3. I have several scans that I run for very specific things, like the Fab 5 basket that I trade. Another scan is to find stocks that are extended too far from a particular moving average. Again, specific things I am looking for – for a specific type of trade.

In summary, I think every trader should do both. Keep watchlists, sorted in a way that best suits your trading. But also be sure to run scans each week for specific criteria that helps you find those new opportunities.