How to Build a Daily Stock Watch List

How to Build a Daily Stock Watchlist

Many beginning traders find that the biggest hurdle they face early on is knowing which stocks to watch on a daily basis.  It can be an overwhelming task with thousands of tickers to choose from.  But luckily, there are a few tips and tricks that can help make this daily task a lot less stressful.  Keep reading to find out how to build a daily stock watch list.

Step 1: Understanding Stock Catalysts

In order to know which stocks to include on your daily stock watch list and which may run in pre-market or after market open, you must first understand what common catalysts drive price movement.  Especially when dealing with penny stocks, it’s important to know that volatility can be both your best friend or your worst enemy all in the same minute.  Volatility is what drives penny stocks to rocket upward, but it’s always what drives them to fall off the face of the earth.  And volatility doesn’t happen without some kind of catalyst.  Below are some of the most common catalysts that drive price movement.

Press Release

As you can imagine, a company trading as a penny stock can garner a lot of investors attentions with a well timed and meaningful press release.  Generally, a press release needs to include some kind of indicator to investors of potential future success in order to bring large numbers of buyers into the fold. Although there are times when a company will put out a press release that essentially amounts to nothing and you’ll still see the price shoot up temporarily.  But you have to beware, press release driven pumps almost always last for short periods of time before the dump happens and shorts take over.

Earnings Reports

Most companies will put out earnings reports every quarter, and a solid report showing strong financials can boost a stock price. You’ve probably heard the phrase that a stock beat analysts’ predictions of Earnings Per Share, and when that happens, it’s usually a good sign the company has strong financial performance.  Such strong Earnings Reports can have short term boosts on stock price but generally are longer-term plays.  As strong earnings tell investors that the future is bright, more institutional buyers may be attracted to buy and hold long-term.

Product Launch/Expansion

Investors want to put their money behind company’s that will earn them more money over time through growth and expansion.  There is no better way for a company to show investors it is growing than to expand their product offering. After a company announces a new product line or expansion of services, there is a good chance that the stock price will climb. The company has proven to investors they are making strides to grow revenue and profit for their shareholders.

Step 2: Identify Pre-Market Gappers

Once you’ve gained an understanding of the most common drivers of price movement, you are ready to move on to the next step of building your daily stock watch list.  Identifying which stocks have “gapped up” in the pre-market trading sessions can help you hone in your watch list.  In the simplest terms, a stock that gaps up opens the days trading session much higher than it closed the previous day.  This indicates that a lot of buyers are interested in the stock. The gap up is usually driven by one of the catalysts mentioned above.

But how do you identify the pre-market gappers?  The two best ways to identify these are by creating a custom stock scanner in the charting tool you use, or by finding a free scanner online.

Custom Stock Scanner

Many charting tools, like TD Ameritrade’s Think or Swim platform, you can create custom stock scanners that will populate with stocks that fit the criteria you’ve established.  You are able to set price ranges, add studies, set volume limits, and much more. 

To help you set up a pre-market stock scanner, Youtube is full of good tutorials.  Here is one we found useful: CLICK HERE.

Free Online Scanners

If you can’t build custom stock scanners, the next best thing are free gap scanners online. It’s okay to be skeptical of free online tools, as anything of great value is usually worth paying for.  However, one free online tool we found is made by the guys over at Warrior Trading – a paid service for stock trading.  While their service is a paid subscription, and quite expensive, they do have a daily stock scanner that can be used to sort by the stocks with the highest gap up % as well as volume.  You can view that free scanner tool HERE.

Step 3: Research the Gappers

After identifying the stocks that have gapped up, it’s important to spend a bit of time to research them to understand what the catalyst was that drove them there.  Over time, you will start to see that some catalysts lead to more price movement than others.  You’ll also learn that some kinds of catalysts are fake and also referred to as “Pump and Dump” catalysts.

But where can you go to find out more details about the catalyst that caused the gap? The answer is – the internet.  Many people use paid subscriptions to Benzinga or other news aggregator websites. We find that free services such as FinViz provide all the details needed.  Of course, if you are high frequency trading or just simply want the information faster, paid subscription services are generally going to be more valuable.  But if you’re just starting out, using a free service can help you keep costs low.

Step 4: Narrow Down Your List & Be Ready

Most mornings there are upwards of 10-15 small cap and penny stocks that have gapped up in pre-market trading.  That is far too many stocks to monitor during market open.  We suggest narrowing the list down to the 3-5 stocks that fit your buying criteria.   Once you’ve done this, it becomes a waiting game.  The Market will open and at that point you should be looking for your entry point. Let the chart develop if needed before just jumping in.

Be sure to review our candlestick guide to help understand the right time to buy!

It’s possible that taking the gamble of buying right at open can pay-off. But you have to remember that short sellers are also attracted to pre-market gappers in hopes of a large sell-off.

The Final Word

Preparing for a trading day doesn’t have to be complicated. Practice and repetition are key to establishing a morning routine. Your morning routine should allow you enough time to identify the 3-5 stocks that you think have the best chance of being winners on the day.  Over time, you may find that identifying and preparing for a trading day only takes you 20 minutes.

But as always, make sure you are paper trading before launching any new strategy. It’s also important to use stop losses to protect your wealth.

Before you get started make sure you read our Quick Guide To Day Trading!

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