Sunday, October 17, 2010

How To Build Your Stock Watch List

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I've updated my stock watch list for this week. You can usually find the list of stocks I'm watching in the sidebar. I currently have 19 stocks on my watch list. I keep these in My Stocks Lists at investors.com and also keep them in my Google Finance account. I thought it would be a good idea to talk about how to set up and manage your stock watch list as well.

The first step in building a watch list is screening for stocks. Having already set up a specific way that I screen for stocks through the Stocks on the Move column in the IBD so I've got that covered. Once I take the stocks I find for the day that pass my additional screens for volume, SmartSelect ratings, earnings and sales and for float, I then add these new stocks to my watch list.

The next thing I do after that is then take the stocks already on my watch list and make sure that they still meet the same criteria to make the list in the first place. For example, if the Acc/Dis rating drops below a B- I then delete it off my list. I decided to do this because I needed a way to manage the list in such a way that it pruned itself. This seemed as good as any. This recently happened to the stock ARUN. I also had a position in this stock and decided to sell it as well.

Once you have this list, what do you do with it? I usually sort the list by price percentage change and start looking at them for proper buy points. If you have read How to Make Money in Stocks, you know that ratings are not enough, you've got to start looking for a proper setup. I do this by reviewing the chart for each stock on my list and looking for chart patterns like the cup with handle, the double bottom or a flat base. I'm also looking for stocks that have been under steady accumulation.

I think that it's worth noting here that when I do this review that I look at the weekly chart. By default, most charts on investors.com retrieve the daily chart. Once I feel I've identified the pattern, I flip to the daily chart to look closer at the volume on breakouts and to identify a pivot point. This pivot point is .10 cents higher than say the high point in the handle in the cup with handle pattern. For each pattern, you'll have to learn how to spot this.

This is by far the hardest part of the CANSLIM strategy. Do it right and you'll avoid getting into stocks that haven't set up properly and also you'll avoid getting stopped out because you bought the stock when it was overextended. You want to buy within 5% of a the pivot point. The way you get good at to start practicing it every day. You may not be right in your analysis but that will come with time.

Here's a good tip. Start looking at the charts of the stocks on your watch list. Then review the IBD's columns called the IBD 100 and the Weekly Review. Every week the stocks in the screens have mini charts that have a little note at the bottom that clues you into what is happening. Sometimes they say exactly the buy point that they calculated. Review what they say and get a bigger chart out and start taking a look at it for comparison. Do this every week and you'll improve. You'll also learn by making simulated buys of the stocks to see if they fall below the pivot points. Reviewing these practice trades will also provide you with an additional way to learn. In fact, I recommend that you constantly buy stocks in your simulator even if you are in a few stocks. This will enable you to see approximately where you would have bought it when you liked the stock in the first place.

The first step in utilizing your stock watch list is reviewing the charts for all of the stocks on the list. You do this so you can spot chart patterns and identify proper buy points.





Let's take a stock this week and have a look. Gulf Port Energy Corp (NASDAQ:GPOR) appeared on my screen Friday. It closed at $16.37 on volume 495.29 percent higher volume. You can see the chart at the right.

I believe that in looking at the chart that this could represent a double bottom base with the high point in the middle of the "W" is where you want to add your .10. This would give me a buy point of $14.81. Is my analysis correct? Honestly, for me I am not sure because only time will tell. This is the whole point. Don't worry about being right or wrong, just make a determination. With experience you'll improve your eye in looking at charts.

Now that I know my proper buy point, I want to make sure that volume surged as it crossed it. If it did, then I check the stock's current price. It closed for the day at $16.37. I want to make sure that if I put an order in for the stock that it's within 5% of it's pivot point. I then take $14.81 times 1.05. The result is $15.55. Since the current price is over that, then this stock is over extended from the buy point that I determined. Therefore, I wouldn't want to buy this stock unless it retreats in lower volume below that point. At that point I might reconsider.

While I typically do this with only the stocks up in price for the day on higher volume, it would be a good habit to do it with all of them to get a feel for how stocks form bases and what breakouts look like. A couple of other quick points before I wrap up today's post. One thing I like to do is see how many stocks were up for the day on my stock watch list. This gives me an indication of how well the stocks I'm watching are performing compared to the market. What I look for is a lot of up stocks when the market has a good day. If this is the case, I feel that I am looking at the right stocks.

The other thing I suggest is printing out the charts for stocks. Then you can make notes on the stocks, draw trend lines and review them later.

Good luck investing in the stock market. Let me know if you have any questions. For further review, you might want to check out my series called Buying Stocks - A Case Study.

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