Stock Watchlist – What It Is and How to Use One Effectively

You’ve probably heard the term “time is money” a thousand times in your life. Your time is valuable no matter what, but it’s especially true that time is money when it comes to stock market investing. Jumping in on an investment too early or too late can cost you lots of money in the long run. 

Finding the best stocks to invest in is just half the battle. The other half is deciding when to invest and being patient enough to wait for the right time. 

That’s where watchlists come in. Most successful market participants, from long-term investors to short-term day traders, use watchlists to their advantage. If you plan on investing, trading, or even a mix of the two, you should consider doing the same. 

What Is a Stock Watchlist?

A watchlist is a list of stocks, exchange-traded funds (ETFs), or mutual funds you’re watching for potential trading opportunities. They offer a simplified way to deploy real-time tracking of specific assets as you trade and invest. 

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Watchlists are most often offered by brokerages, trading platforms, and financial media websites like Yahoo! Finance and Stocktwits. However, not all are created equal. 

Some watchlists simply show you if the assets on your list are trending up or down and the percentage of gains or losses. Others act as complete signaling services, alerting you when technical indicators produce trading signals, when momentum is climbing, or when sudden price changes affect an asset you’re watching. So you want to compare the functionality of the different offerings and ensure the watchlist you end up using can meet all your needs in the market. 

How Stock Watchlists Work

Stock watchlists work by automatically tracking the movement of the stocks and other exchange-traded assets you’re interested in so you don’t have to do it manually. Watchlists can include a few, several, tens, or even hundreds of stocks, but the typical list consists of somewhere between 25 and 75 potential investment and trading opportunities. 

This seems to be the sweet spot because watchlists with fewer than 25 assets produce too few signals and those with more than 75 assets are often too active for a single investor or trader to keep up with. 

No matter how many assets you add to your list, it’s designed to do one thing – keep tabs on financial markets for you. Find examples of investing and trading watchlists below to get a better understanding of exactly how they work. 

Investor Watchlist Example

An investor wants to invest in large-cap tech stocks like Apple Inc (NASDAQ: AAPL) and Meta Platforms Inc (NASDAQ: META), but the investor isn’t interested in paying a high valuation. 

The investor builds a watchlist consisting of 25 stocks in the tech sector and sets the watchlist to send notifications based on valuation metrics. If one of the stocks on the list crosses a specific price-to-earnings ratio (P/E ratio), the investor is notified that it’s time to act. 

The investor is playing the value game but doesn’t want to miss an opportunity to catch a reversal. The investor adds another notification that produces an alert when the price of the stock crosses above its 200-day moving average, a signal that significant growth might be on the horizon. 

When either of these events happen, the investor is notified that it’s time to move. 

Trader Watchlist Example

A day trader is following the momentum trading strategy and focused on high-volatility penny stocks. The trader’s goal is to find high-liquidity stocks that are moving quickly in one direction or another. 

The trader creates a watchlist of 50 penny stocks that are known for both high levels of liquidity and high levels of volatility. The watchlist is configured to signal the trader if any of the stocks on the list experience significant price changes coupled with high trading volume.  

Any time one of these events occurs, the trader follows up with detailed technical analysis to determine if it’s a false signal or an opportunity worth taking advantage of. 

Types of Stock Trading Watchlists

There are several ways you can build a watchlist. For example, you can build a list consisting of income stocks, growth stocks, value stocks, or a mix of the three. You can build a list of stocks in any sector of the market or any market around the world. 

No matter how you build your list, it fits into one of two different types of watchlists: 

Investing Watchlists

An investing watchlist is a list created by a mid- to long-term investor. The investor isn’t concerned with short-term momentum. Instead, these lists typically produce signals based on valuation and other fundamental data, though long-term investors will use technical data to determine the best points of entry from time to time. 

Trading Watchlist

Whether you’re day trading or swing trading, your watchlist is designed for traders. These lists typically produce signals based on technical data and high levels of volatility rather than fundamental data. 

How to Create a Stock Watchlist

So, you’ve decided it’s time to create your own list of stocks to watch. Great! Follow the steps below to get started. 

Step #1: Define Your Perfect Opportunity

Think about the types of stocks you want to invest in. For example, if you’re a value investor with an affinity for small-cap stocks, you’re looking for stocks with a market capitalization between $300 million and $2 billion. They must qualify as “cheap” based on certain additional valuation metrics, such as the price-to-earnings ratio (P/E). 

Step #2: Pick a Watchlist Provider

You don’t want to create a watchlist with a pen and pad. The point of having the list is to have technology keep tabs on the market for you, so you’ll need a provider. Don’t worry — they’re everywhere. Most online stock brokers, trading platforms, and financial media outlets offer watchlists. 

They’re not all the same though. For example, if you’re a long-term investor, you want to choose a provider that makes it easy to set signals based on fundamental data. If you’re a technical trader, you want a provider that offers technical functionality. 

Step #3: Find Stocks to Add to Your Watchlist

You may think that finding tickers to add to your watchlist is the most daunting part of the process. The truth is that thanks to technology, finding and adding stocks to a watchlist isn’t difficult at all. 

The easiest way to find stocks for your list is to use a stock screening tool. There are countless free and paid stock screeners out there. Like watchlist providers, each is unique.  

These tools scan the market for you based on the parameters you tell them to look for. If you’re looking for stocks with market caps between $300 million and $2 billion and P/E ratios below 15, simply plug those numbers into the screener. It’ll think for a minute, then spit out a list of dozens, maybe hundreds, of stocks meeting your criteria. 

Comb through the list and find the 25 to 75 most appealing stocks and add them to your list. 

If there aren’t 25 stocks on the list, your search was likely too narrow. Expand your parameters to include stocks that may not quite be in your valuation goal or market cap range. Keep in mind, your watchlist is there to tell you when assets you’re watching cross milestones that are important to you. 

Step #4: Set Your Signal Criteria

Finally, after you’ve added all the stocks you’re interested in to your watchlist, set the signal criteria on the list. The steps for doing this vary from one provider to the next, but most watchlists are pretty self explanatory. 

How to Use a Stock Watchlist

There are multiple ways to use a watchlist, but they all revolve around telling you when it’s the best time to do one of two things:

  • Buy Assets. You can set up a watchlist to tell you when it’s time to consider buying assets you’ve had your eye on. It’ll send signals when valuations are low or when technical indicators point to upward movement in the near future. 
  • Sell Assets. You can also set up a watchlist to tell you when it’s time to consider exiting your positions. It’ll tell you when valuations climb to overbought levels or technical indicators point to a downward shift in momentum. 

Watchlists can be built for any asset class and any trading strategy. For example, if you’re an income investor, you may build a watchlist that signals you when the dividend yield falls below a certain level on any of the dividend-paying stocks in your portfolio. At this point, it may be time to sell the assets with falling yields and consider buying assets that produce larger dividends. 

You can also use multiple watchlists as you trade and invest. For example, you may have one watchlist that tells you when to exit positions and one that tells you when to enter them, both of which are based on dividend yields. 

Stock Watchlist FAQs

Watchlists help to simplify the investing and trading process by keeping an eye on the stocks you’re interested in and alerting you to meaningful movements in data. However, until you use them and climb the learning curve, it’s normal to have a few questions. 

Why Do I Need a Stock Watchlist?

Chances are you’ll do one of two things without a watchlist:

  • Ignore Opportunities. As you search for opportunities, you’re likely to ignore those that don’t fall exactly within your parameters. These may not be opportunities today, but they may be the biggest opportunities of tomorrow. If you have a watchlist, you can track these opportunities and take advantage of them when the time is right. 
  • Make Poorly-Timed Investments. It’s also likely that you’ll invest in stocks because a few metrics seem to line up. However, the metrics that don’t line up are often warning signs that the timing isn’t right yet. If you add stocks to a watchlist, you can wait until all metrics agree that it’s time to buy. 

The bottom line is that time is money in the market, and watchlists help you get the timing down to a science. 

What Are the Best Curated Watchlists?

There are countless curated watchlists online. Some of the most popular include:

  • Yahoo! Finance. Yahoo! Finance offers several curated watchlists for all types of investors. Whether you want to follow stocks in a specific sector or you’re looking for value, income, growth, or a mix of the three, you’ll find what you’re looking for at Yahoo! You can also build your own watchlists.
  • Benzinga Pro. Benzinga Pro has a long line of curated watchlists and one of the most robust customizable watchlist offerings online. 
  • Bloomberg. Bloomberg also has a long line of curated watchlists and offers the ability to create your own customized list with trading signals. 

What Are the Tools to Create My Own Watchlist? 

The two most important tools you need to create a watchlist include:

  1. Watchlist Provider. Most brokers and trading platforms offer watchlist functionality. You can also choose to work with one of many financial media providers with similar functionality. 
  2. Stock Screener. There are thousands of stocks to choose from on the market, and weeding through them one by one would take a lifetime. Make your life easier by finding stocks that fit the parameters that matter to you with a stock screener. 

Final Word

A watchlist is a great way to keep tabs on multiple stocks at the same time, but it’s not wise to blindly act on the signals it produces. 

Some signals do hint at rare investing opportunities. In other cases, a stock with once-great fundamentals may seem like a good buy, triggering a watchlist signal to match. But it’s destined to underperform the market because it’s no longer a quality name. It’s what professional investors call a value trap. 

That’s why it’s important to do your research at the time of the investment. Don’t rely on an outdated understanding of a stock because your watchlist finally signaled that it’s time to buy. The more educated your investment decisions, the more likely you are to succeed in the market. 

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