Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
Profitable traders don’t trade stocks. They trade stock set-ups.
There are as many trading systems as there are traders. Still, my 20+ years of trading have driven home a key distinction between trading and investing.
“Trade on price action, invest using fundamentals.”
Suppose you’re only going to be in a trade for a day or even a few weeks. In that case, the company’s financial statements are meaningless.
Take TSLA as an example.
Its P/E ratio is absurdly high, and it’s a car company that doesn’t turn a profit selling cars.
Yet, irrational exuberance and CEO Elon Musk’s cult of personality drove the company’s stock price to nosebleed highs.
From $50.60 per share in late October 2019 to a high of $901.27 on Jan 25th, 2021?
That’s a 1681% gain in just over a year.
Reality just didn’t seem to matter.
From a trader’s perspective, this is perfect. Ride the wave and rake in the profits. Unfortunately, those who bought in near those highs are now going through some serious pain.
Savvy traders of TSLA made money on both the meteoric rise and the sell-off.
Identifying opportunities for trades from among the thousands of equities can be a daunting task unless you maintain and track your favorites using watch lists.
So what is a watchlist?
It’s a group of stocks that you regularly monitor for potential trades.
Any broker platform or stock charting package will allow you to build these watchlists. The better ones, such as Think or Swim, let you set many different alerts on these tickers.
I maintain numerous watchlists for major indices such as DIA, SPY, QQQ, and IWM.
And I monitor the various sectors and subsectors within each of these.
You MUST get into the habit of creating your own.
As you progress through your trading journey, you’ll find that you have pet stocks that you prefer to trade.
Maybe you have lots of success with the high-dollar tech companies like GOOGL, MSFT, NVDA, and FB. Or perhaps you prefer trading sector ETFs like XLC, XLV, XLK, and others.
It’s entirely up to you.
No one watchlist is better than any other as long as it makes you money.
Finally, if you prefer to screen for stocks with specific chart patterns or other technicals, then take some time each weekend and build a watchlist for the week.
Personally, I do all of the above.
As you can see below, I track the major indices and many ETFs, commodities, bonds, and sectors.
Though my list contains some customized algorithms and proprietary code, you don’t need to be a computer whiz to maintain a watchlist.
Although I have opinions on long-term buy and hold equities for my ‘treasury’ account, I remain entirely agnostic regarding short-duration trading.
“What does the company do?
Who cares. As long as it makes me money on trades, count me in.”
True believers who trade on belief, faith, or activism get slaughtered by the market.
You can love or hate a company, but when it’s about trading profits, the only thing that matters is data. Either the technical set-ups are there or not.
Save your feelings, hopes, and dreams for your diary.
Build your watchlists and check them regularly for solid trade opportunities using your most successful strategies in line with your plan.
A simple task, but one that will ensure you can always profit-making opportunities.
For more in-depth information, be sure to head over to Rogue’s YouTube channel and subscribe to my Hood Talk videos.
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