RSS
The Importance of Creating Watchlists and Screening for Ideas
Author: Moby Waller (info)
Website: http://bigtrends.com
Posted: August 14th, 2008 at 2:03 pm EST
Post your thoughts about this article. Click here!
The Importance of Creating Watchlists and Screening for Ideas
August 13, 2008
For running my Advanced Options Strategies (AOS) advisory service, I compile a Bullish and Bearish Watchlist, which is updated quite often and changes/additions to the list are disclosed to my subscribers nightly. This is a list of stocks that have come up on my radar, usually through a Daily Technical Screen I have created. I then check them against the Weekly Chart (looking for confirmation of certain patterns), and also thoroughly examine the Fundamental Outlook for possible event risk or possible upside potential surprises - I also check the Options Pricing, Implied Volatility, Open Interest, etc, before adding a stock to my Watchlist. I highly recommend using this tool as a way to help your own personal trading — develop your own “Watchlist”, then wait for the right low-risk entry to point to enter the trade.
Your methods, indicators, screens, and systems can vary and often need constant adjustment to given market conditions, but it is a good idea to always keep organized and to limit how many stocks you are watching at a given time, to the “best of the best” signals. This is also useful because it enables you to easily go back and see what worked and what didn’t with your signals, or what would have been the best entry point/exit point - for example, which was the best “buy” point: was it the initial breakout, the initial pullback on the breakout, or the pullback to lower support. You can easily keep such a Watchlist in a simple spreadsheet with dates of when stocks are added and dropped.
(Continued Below)
One idea I would suggest when screening for Watchlist names is looking for stocks that are approaching a breakout of a long-term trading range, the longer the better - or have recently broken out of a trading range. If a security is finally able to bust out above that significant resistance, it is likely to keep going with some momentum for some time. At times, you can even anticipate that a breakout is going to occur - for example, I have often found that the 3rd or more test of a range is when the breakout occurs - the more tests the better, 3 being the minimum I would prefer to see
Of course, once you have your list of longer-term breakouts in this example, you then want to find the short-term entry point, where risk is low with big upside potential. This can often be a pullback to the previous support, or a Percent R/Acceleration Band re-test (a method in which Price has been a pioneer of), or a pullback to an Exponential Moving Average, for example.
This method differs from most traders who will just buy the breakout (or even a false breakout) - waiting for a pullback allows for a lower-risk entry point within the overall upside momentum. At times I will even anticipate the breakout before it occurs, through using shorter-term charts and indicators - in those cases, there may have been a break above the Top Acceleration Band and a Percent R breakout, followed by a pullback to other important technical support levels. Depending on the situation, that will often present a low-risk entry point that will precede the upside breakout.
Methods such as this is how, for example, I added Imclone (IMCL) to the Bullish Watchlist on July 29th that my Advanced Options Strategies subscribers received — 2 days later the stock jumped around 50% on a takeover bid. Can I predict buyouts or did I have some rumors/information about a takeover bid? - of course not, but charts and technical analysis can often paint a picture behind the workings of a stock or can show “the story behind the story”. In this case, IMCL was verging on breaking out of a “double trading range”, meaning both on the Weekly longer-term and the Daily shorter-term time ranges, a potent combination.IMCL Weekly Chart with Trading Range
IMCL Daily Chart with Trading Range
I am speaking in generalities here about my indicators and signals, my AOS subscribers get the specific how and why behind things, along with specific recommendations - but as a general rule, I recommend compiling and being diligent about updating your own Bullish and Bearish Watchlists and waiting for “the perfect time” to enter them for short-term winning trades. Of course, sometimes a Watchlist stock will take off, and not give you a good re-test or low risk entry point, but you should take that as a sign that your indicators/techniques are working, and just move on the next opportunity.
Moby Waller
Research Analyst
Advanced Option Strategies, Portfolio Manager
moby@bigtrends.com
Post your thoughts about this article. Click here!
Investing, Moby Waller, Options, Psychology, Stock Market, Stocks, Trading
Know someone who would like this article?
EMail This Post
No comments yet
Leave a Reply
|
StockWeblog.com Weekly Update Newsletter
|