There are numerous ways that investors use to create a watch-list of companies for them to trade. There is not a right or wrong way, more of a personal preference. A top down approach is a method where we start at the top, looking at the whole market and then work our way down until we end up with some individual companies to add to our list.
First, we take a look at the overall market, usually based on the S&P 500. The purpose of this is to determine whether we are bullish or bearish. Depending on our preferences for trading, we would base our opinion of the market on short term outlook, long term, or somewhere in between.
Assuming, our outlook is bullish, we then would see which broad based sectors are performing well in the time frame we are considering. My preference is to see not only strong recent performance, but strong performance that follows some under-performing.
Once we pick 2-3 sectors, we can than focus on specific industries in those sectors that are performing well. From these industries, we then start to focus on the individual companies. We want to make sure that these company’s fundamentals are in order. This process can be sped up with the help of screeners such as found on http://finviz.com/ .
Once our list is created, we can store it on a handwritten notebook, or electronically on numerous sites, or even on an Excel spreadsheet. This list that was created would be the list that we base our trades from. We would check the charts of these stocks to see if we want to buy at this time. This list would need to be updated on occasion based on our time frames that we consider.
Getting in to a routine that we follow religiously is one of the best things that we can do as a trader.
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