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:
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.