How to set up a watchlist

What progress have watchlists made! From the yellow pad and end-of-day newspaper quotes to instantaneous online watchlists that transverse a multitude of search criteria: sectors, market capitalisation, growth, moving averages or trading volume. All this could be at your fingertips, for free, in just few seconds.

For decades, stocks have been the most popular investment class, mostly due to the intensive coverage they have been receiving from the media: quotes, earnings, mergers, or sector trends analysis, just to name a few. Furthermore, we all have friends or family members who have also traded stocks at some point and can offer us some insight into the stock trading process.

One of the initial steps in stock trading is to take advantage of the free information that is available online by setting up a watchlist and a demo portfolio.

Watch lists are essential for many reasons. First of all, they help eliminate the informational “white noise” that we are exposed to on a daily basis and focus only on stocks that fit your criteria, instead of CNBC’s latest stock feature. Secondly, a watchlist provides a certain framework, or discipline, which is must needed for trading. A good number of stocks to focus on at any given time should not be too large, about 20, because it is important to become familiar with the way a stock trades. You should gather watchlist updates according to the time frame of your trades. For intra-day trading, updates should be received several times daily. For a longer term approach, such as growth orientated buy & hold, changes to the list should be made only a couple of times a year. For example, if your initial criterion of a high return on assets (ROA) for a stock no longer applies, you should consider replacing it.

There are few websites that allow free personalised watchlists. The choice depends on the markets that you are interested in: Australian, American, European, etc., and the type of trading you prefer: fundamental or technical. For example, you could create a basic watchlist of your favorite Australian stocks by registering for a free account with the Australian Securities Exchange (ASX).

Other websites, such as freestockcharts.com, allow setting up a watchlist by using some technical sorting criteria: volume, price at new low, price moving up fast, or fundamental factors such as price to equity ratio or Capitalisation. Each stock comes with a delayed data chart and the possibility of setting or sorting alerts. The website also allows users to create a profile and share messages and files with other users, or post a chart on a social networking website, such as Facebook or Twitter.

Yahoo Finance has similar features for US stocks. From Stocks Research Tool-Stock Screener-you can create your own personalised or choose a preset screener: large cap momentum, bargain growth or contrarian, etc. You can track the results of your selected list of stocks and you can see what others have said about a certain stock.

As mentioned previously, creating a watchlist is just the first step in the trading process, and for some of us it ends there. Although some websites provide us with the tools of creating a watchlist and a demo portfolio, most people find it difficult to focus on a ‘phantom’ portfolio for too long. Furthermore, trading decisions made on a demo account could be different from the decisions made when real money is involved because of the psychology of trading. For example, the inability to cut losses short, or the fear of letting profits run, could both play crucial roles in anyone’s portfolio performance. For this reason, you should keep in mind that past performance of your demo portfolio does not guarantee future results. Furthermore, the demo performance could be significantly different than real portfolio performance due to the emotional factors mentioned above.