How to Build a Stock Watch List
Criteria for Building a Growth Stock Watch List
A lot of people have been asking me for an advice on how to better identify leading stocks and what exactly they should look for in a Growth Stock. Market has been trending sideways for the last 3 weeks and stocks are building bases from which to propel higher. Stocks usually gap up or plummet during earnings release and we are right in the middle of 1st quarter earnings release right now. It's critical to have a ready stock watch list to act on when opportunities present themselves.
In this post I will give a general overview of the philosophy I've put together that best meets my criteria as a very conservative trader and an investor. There are over 10,000 stocks and etf's and I find it best to minimize my risk and look at only the leading stocks in the leading industry. One needs to have just 5 to 8 stocks in their portfolio if one has a portfolio size ranging between $100,000 and $1,000,000. One needs to concentrate their portfolio to just a handful of stocks to out perform the general market.
Where Do I Start?
I like to picture my watch list stocks flowing downward through a funnel applying my filters along the way where only the best opportunities make it to the bottom. In my mind, the top of the funnel focuses on the broadest aspects of the market so I like to review the chart action for the 2 major indices - the $SPY (General Market Performance) and the $QQQ (Growth Stock Performance) to give myself an idea of the general conditions I'm working with.
After that, I move on to the next phase of my research where I focus on the 10 major sector ETF's. My goal here is to determine which of the sectors is leading the way and has the most momentum action. Once I have identified the best performing sector, I start looking at the top stocks within just that sector to help give myself some context. At this point of my watch list preparation I'm reviewing charts with an eye towards the Relative Strength in order to get a clearer picture of a sectors general momentum. My aim is to identify only stocks that the institutions are exhibiting an interest in the current environment.
Eliminating Variables
I view variables as barriers to action so now that I'm in the middle of my funnel, I've got to eliminate some to help me narrow things down. At this point I begin incorporating IBD? more heavily into my process. I'm looking for 10 specific things in a stock
- Relative Strength must be at 87 or higher
- EPS rating must be at 90 or higher
- Composite ratings preferably 95 or higher
- Volume traded per day must be a minimum of $60 million (price of shares x average daily volume of stocks traded)
- IBD? accumulation distribution rating, B or higher
- Up down volume must be at least 1.4
- The stock must be in the top 40 group preferably
- I look for a general trend that shows me an increase in price and an increase in volume of shares traded.
- I review IBD? mini charts and make annotations on my brokerage platform charts for an earlier buy point and ideal buy point zone.
- The stock must show increased sales and earnings in the last 2 quarters.
Building The Watch List
Once I've applied the above criteria I can begin putting together a true actionable watch list. My watch list criteria are very strict. I may end up with as many as 10 stocks to my final list - if they fit my frame work - after reviewing over 150 to 200 stocks over the weekend. However, I only take 1 or 2 positions at a time as a part of my trading philosophy. At this point in my process, I need to select only the cream of the crop as my prime opportunity for taking a position.
To help me determine which stock gives me the best opportunity for profit I consider the following:
- Is this stock moving up in relative strength.
- Is this stock increasing in volume.
- Is this stock showing increased price.
- Is this stock approaching its resistance line.
- Is this stock approaching it's buy point.
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Now I am at the bottom of the funnel. Before initiating a stock position, establish a trade plan taking following into consideration:
- Identify a conservative profit target
- Establish a loss thresh hold
- Define my window of opportunity with a specified time frame.
- Decide on initial position size
- Have a plan in place to scale up in position at appropriate places as the stock makes a progress.
Growth Stock Coaching
I have been getting a lot of inquiries from my readers asking for a weekly session on ZOOM platform. Lot of you enjoy and appreciate receiving my Stock Watch List that I post on my blog. Some of you have asked if I could go over my stock watch list and share what I see in the stock charts. I am giving it a lot of thought and would consider offering a Weekly 60 - 75 minute sessions to help you all with trading successfully and profitably. It will be interactive and allow all participants to be actively engaged in the session. Please give me your feed back and let me know:
- What would you like to learn during a Zoom session?
- What are your weaknesses with trading that you would like for me to help you polish up on?
- Are you an IBD subscriber and for how long have you subscribed to it?
- Would you like to be trained on some of the finer points to look for on IBD website?
- What would you be willing to pay to get educated and become profitable from your Zoom session if such a coaching product would enhance your trading skills?
- Would Option strategies sessions on Growth Stocks be of an interest to you?
The more information you can provide me with your needs, the better I would be able to develop an appropriate Zoom sessions that will help meet your needs.
Happy Trading!
Amin Hemani