Avoid These 2 Things in Your Watchlist
What is a watchlist? If you’ve been following me, you’ll remember that yesterday we began going over what a watchlist is and the benefit of having one.
Just to refresh: A watchlist is a list of stocks you watch to see if they fit a particular trading strategy.
There are far too many stocks to keep track of without a watchlist.
It’s virtually impossible to keep up with that many stocks. I believe in trading with as much information and education as possible. You have to be prepared. Your watchlist can help you identify potential trades that meet your trading criteria.
Yesterday I left you with four things to look for when it comes to your watchlist. We covered the first two: company details, and stock analysis.
Let’s start off today with the final two…
But before we get to them, yesterday I also published the very first issue of my new project, the Penny Stock Letter. The inaugural issue goes into detail on the hottest sector of 2019… how to create a watchlist specific to that sector… and a way for you to potentially profit.
If you are serious about using penny stocks as a way to profit like me and my students. you will not want to miss this. Click here for more on my new project.
After you’ve done that, read on for the last two things to look for when it comes to your watchlist…
3. Volatility and Price
What is volatility? According to Investopedia, volatility refers to the amount of uncertainty or risk related to the size of changes in a security’s value. In other words, higher volatility means potential wider price fluctuations.
For a day trader, stock volatility is a positive. When the market falls, it tends to reduce volatility. As volatility moves lower, fewer shares are traded. When fewer shares trade, the liquidity in the market goes away.
4. Key Patterns
This is a huge one for me: Trading on patterns.
When the pattern is right, you can often predict it. When the naysayers email me and tell me to, “man up and stop only trading GIMMES — and start trading challenging strategies,” I laugh.
My first million was made trading one basic pattern. (My second million came from another another basic pattern.) Successful penny stock traders study, understand, learn to identify and then use patterns over and over again.
I teach my students common and reliable patterns. Like dip buying, shorting, buying low-priced stock breakouts on big trading volume, and earnings spikes. Learn these patterns.
Earnings breakouts happen over and over again. Sometimes an earnings breakout can go for three days or more. So keep an eye out for those big percent gainers.
Once you identify a big percent gainer, check to see if the catalyst was earnings. If it was, add this stock to your watchlist.
The dip buy is a another simple-yet-often-reliable penny stock pattern. What happens after a penny stock is pumped? The dump. It drops in price.
If you watch, a lot of times the stock will bottom out at a support level and then bounce back with a short squeeze. When all the short sellers try to get out of their position at the same time, it causes the stock price to bounce back up.
So watch stocks that rise and then come crashing down. If it’s a big enough crash, it could be a dip buy opportunity.
There’s also the classic “buy the rumor, sell the news” pattern. It happened earlier this year with marijuana stocks. There are more patterns you need to learn. I teach them in this must-read article.
Using Screens to Filter Important Data Points
Now that you’ve started a stock watchlist, what data points should you look for?
Perhaps just as important, how will you keep track of everything in real time?
I’m glad you asked …
One of the amazing things about the time in which we live is that you can trade from anywhere. All you need is a high-speed internet connection and an online trading account. With all the tools available, the barrier to entry is almost non-existent.
I recommend using a screening system. A stock screening system like StocksToTrade gives you real-time access to all the information you need to make trades based on your trading strategy.
StocksToTrade has built-in tools for creating custom stock watchlists. You can set up your account to scan the markets for stocks meeting whatever strategy you want to use.
Whatever system you use, try to avoid a ‘cobbled-together’ screening system. That’s where you use so many different tools to get the information you need that you spend all of your time trying to make sense of it.
Tip: StocksToTrade has some of my favorite strategy identifiers built in. They’re called pre-programmed scans. StocksToTrade has dozens of them. There are other tools out there as well.
Bonus Tip: StocksToTrade incorporates a ‘paper trading’ module so you can practice before you put your hard-earned cash on the line. This is ESSENTIAL if you want to hit the ground running and grow your account from the beginning.
What to Avoid in Your Watchlist
By now, you know I favor trading stocks on the move. So if a stock stays flat for several days and there’s no catalyst for movement, I take it off my watchlist.
1. Don’t Pick Too Many Stocks
Stock trading is more of an art. It’s definitely NOT an exact science. It’s like aiming at a moving target. If you have too many stocks — both on your list and in trades — you’re aiming at too many moving targets.
Limit the number of stocks on your watchlist and you’ll have a much better chance to understand how the game works. I usually have anywhere from five to 20 stocks on my watchlist. I recommend fewer to start.
2. Never Trade Too Big
One of the most important things to learn when you are a newbie trader is how to mitigate risk. This takes a clear strategy and self-discipline — too many traders lose their asses because they lack one or both.
Remember, no matter how much preparation, you will lose some of the time. Losses are part of the deal. Aim small, miss small. Then, when you do miss, cut your losses quickly.
The goal is to win more and achieve a better profit on your wins than the amount you lose. That’s it. Don’t overcomplicate things.
There are several different opinions about what percentage of your account to have in play on any given trade. A lot depends on the level of risk you’re willing to accept. At first, you should focus on small plays. Once you know what you’re doing you can go for bigger trades.
In my early days of trading I often limited my position to 10% of my account. As the markets moved into the heady days of early 2000 and I started seeing consistent daily profits, I increased my stake. Some trades I even went as high as 75% of my total account.
The caveat? That was after learning enough about the patterns I was seeing to feel confident about what I was doing. I was also lucky.
I’ve got just a few more points to make about watchlist.
Tomorrow I’ll go over some examples with you and my final top 3 tips for starting your own watchlist.
Don’t miss out.
— Tim Sykes
Editor, Penny Stock Millionaires