A friend asked Johndeo,” how many stocks should be on your watch list? So, he gladly shared his list based on his actual strategy.
The number of stocks in a watch list depends upon the trading strategy. Having two to five is manageable, yet using only one is usually not enough. However, there are tools that can assist anyone to handle more than five stocks.
Without limiting the lists, traders will not be able to deal with too many stocks, unless he has trading assistant/software. For example, stock break outs are difficult to catch when looking at several stocks.
Some people are good with numbers, and they can work with too much data while others are having so many difficulties, as well, when dealing with so many numbers.
Some traders use Amibroker to create automatic watch lists, and the list can be more than our recommendation. Some broker platforms have its scanners also to create lists.
Before the stock market opens, one should have created his updated list already.
What is a stock watch list?
According to Investopedia, “A watch list is a list of securities being monitored for potential trading or investing opportunities.” (Source)
Traders should keep the list updated, and make it as few as possible.
Trading is difficult and, it must be simplified.
Here is an example of a watch list.(video)
Effective Watch list
An effective stock watch list is always based on working trading strategies. It must be well-organized and easy to understand.
The list must also be updated daily to help traders make good trading decisions. The dates when the stocks were added are also necessary.
These makes creating a watch list difficult and time-consuming, yet it is required for trading correctly.
However, Amibroker can make everything automatic, so traders can skip the manual process. Go to our screener page to see set-up examples.
Amibroker is a scanner, but people can also use it to create watch lists.
There is one rule traders should follow.
Only add a stock in the list if it meets all the well-tested trading criteria. Meaning, the strategy was back tested properly, and it must generate profits.
When the list is long, say it has 50 stocks in it; traders can filter the list farther using additional fundamental or technical screens.
Some people use Price to Sell Ratio below ten to select stocks for their watch lists. One can read it on this website and the title of post is “Creating a buying signal.”
There is a new strategy below which can help traders create a watch list.
An Example with a strategy
While searching for trading strategies, Johndeo saw a new trading strategy using the Arnaud Legoux Moving Average indicator developed in 2009. (Source)
The indicator has minimal lag, while SMA and other moving average indicators are slow.
ALMA has three elements:
- Window size
The default setting of ALMA is widely used by most professional traders because it has an edge. No wonder, they always early in their entries and exits.
The MAMA strategy is a good strategy for short-term trading, and it was derived from ALMA and MACD together. Details of its rules are shown below:
- The price is above and crosses above ALMA 9
- MACD cross-over (Default settings).
- Average volume in the last five days is high.
- Buy only if the above criteria is true and price is within 5% above ALMA 9
- Exit when the price cross below ALMA9 (Time frame can be 1Day, 1hour, or 15 min depending upon price speed)
Someone created this strategy by using the new ALMA indicator. (Source)
The chart below shows the edge of ALMA indicator over the others:
The ALMA indicator (red) always reacts to market direction earlier than its moving average rivals.
Although ALMA is based on averages, this indicator is faster than the others. It was created to solve the lag problems of simple moving average and others.
Traders will make better decisions when they use this indicator.
Keeping it simple
The above trading strategy is useful when creating a stock watch list. The list should be reduced to manageable amounts.
Why put it in a watch list?
Traders should remember the 4th criteria above to reduce the risk in stock trading. It is the reason why traders should create a watch list, instead of buying and selling shares, immediately.