3 Tips to Building and Trading a Watchlist
Building a watchlist and knowing how you are going to trade it is one of the most important things you can do to improve your success.
We recommend focusing on these 3 things when building and trading your watchlist:
- Find stocks near levels of interest
- Price action and volume
- Overall trend
So, what is a level of interest when building a watchlist?
The first step to building a watchlist is finding a level of interest. This can be any key level on a chart, most commonly support or resistance lines, trend lines, or supply and demand zones.
The reason we want to find stocks near these levels is that other traders and more importantly, institutions, are also watching and trading these levels.
Institutional investors typically buy at major supports or at supply and demand zones. If a large institution steps in to buy at the same level you do, there will be an increase in buyer pressure and volume which will help push the stock in your desired direction.
What kind of price action and volume patterns should I look for before entering?
As we have discussed on the blog before, you need to have confirmation before entering a trade. This confirmation comes with price action and volume.
Strong price action comes in many forms; long buyer/seller wicks, momentum candles, and engulfing candles are a few examples.
The second form of confirmation when building a watchlist is looking for is an increase in volume.
When it comes to breaking through a previous resistance level, there needs to be an influx of buyers otherwise the price will likely reject the resistance again as it has in the past.
Check out this example of strong price action:
Remember to pay attention to the rest of the time frames and market as well!
Another important thing to consider when trading and putting together a watchlist is making sure all of the trends correlate.
The best trend confirmation will come when you confirm the stock is following your trend on multiple time frames (i.e. the daily and hourly charts).
If the stock is trending down on the daily chart but is trending up on the hourly, double-check your key levels and make sure you have enough confirmation before entering the trade and going long.
If the market is uptrending and the stock is in an uptrend as well, this is another positive confirmation for our trade.
Building a watchlist can be overwhelming at first…
Once you have used these three steps to create your ultimate watchlist, you will be able to minimize the confusion that comes with where to start:
- Finding a key level of interest
- Looking for price action and volume
- Watching overall trends
What are your favorite stocks to trade on your watchlist? Let us know below in the comments!
