What The Hell Is Going On With Your Trading Watchlist?

My offices recently moved to downtown Los Angeles from Century City.  I liked Century City, but come lunch time there was a serve lack of places to eat.  There were only three places within walking distance and it didn’t take more than a month from when I first got there until I was burned out on all of them.

Now I literally have over a hundred different places to choose from.

Tex-Mex.  Gourmet burgers.  New York style pizza.  Pan-Asian fusion kitchens. Trendy foodie cafes.  Gastro pubs.  Retarded vegan wraps shops.  Oh, we got em all in Downtown.

And I fucking hate it.

Yeah, I like good food and I like choice, but too much choice just makes my head spin. And the thing is, every one of these food places has like a hundred more options to sift through once you get inside the door.

Yesterday I was looking for a sandwich.  You know, a “Sand-Witch?”  Maybe you’ve heard of them?  Bread, meat, some necessary veggies, a little mayo, and *BOOM* you’re good to go.

But when I wandered into the tragically hip Mendocino Farms restaurant next to my building, here’s just a small sample of the choices I had to wade through on their menu.  It’s was a cryptographers wet dream.

Korean Short Rib Sandwich.  Singaporean Dosa Wrap.  Spicy Chipotle Turkey Meatball.  A Sandwich Study Of Heart.  Spicy Lemongrass Steak BanhMi.  Vegan Shawarma.  The Drunken Goat on Highway 128!

The “Drunken Goat”?  Seriously?  (It’s Herbs de Provence marinated Drake Family Farm’s goat cheese, French brie, cranberry chutney, green apple, Scarborough Farm’s greens on cranberry walnut bread in case your were curious.  AND you can add shaved, roasted free range chicken breast for only $1 more).

Even if I could figure out which one of these alleged sandwiches I might find appetizing, I still had to make it past the “bread choice” part of the competition.

Rustic White.  Buckwheat.  Dolce Forno Soft Roll.  Grilled Honey Wheat Tortilla Wrap. The Sensitive Baker’s Gluten-Free Bread.

Anyone ever heard of sourdough break for Christ’ sake?

At that point I just said “screw it,” and went next door to Mickey D’s for a comfortingly ubiquitous Quarter Pounder w/cheese combo.

The poster boy for obnoxious sandwiches

I have the same disdain these days for the sprawling and unwieldingly large watchlists that I often see newer traders maintain.

Let’s face it, there is a fascination among some traders to be the “Indiana Joneses” of the markets.  Finding and filling their watchlists to the brim with all sorts of exotic and unusual stocks.  Being the first to discover that Peruvian tech start-up that is going to knock $AAPL on its ass as soon as it launches it’s new biodegradable smartphones made out of coca leaves.

I get emails all the time from traders asking me what I think of this penny stock, that microcap pharmaceutical, or some random illiquid ADR they are sure is their ticket to riches.  These stocks are the equivalent of that “Drunken Goat” sandwich.  Obtuse. Hard to understand.  Purposely inaccessible and frankly unnecessary.

The question I ask them is “why do you have to find and trade the next $AAPL killer when you have $AAPL?”

Mind you, I am not saying to turn a blind eye to up and coming stocks or sectors, like the 3D space for example.  There are real companies in that sector like $DDD and $SSYS that have liquid and tradable stocks.

What I am saying is that you should always have a stable of tried and true stocks that you know and understand on your “go to” list to trade.  There are no bonus points in the market for making money off of a Bolivian mining stock instead of $GOOG.

My watch list tops out at 350 stocks max, filtered by a number of factors, two of the most important being liquidity and sector “hotness.”  My goal is to find reasons to cut stocks from that list so that I can keep it manageable and leave room for any worthy additions.

From that list I distill out 10-15 stocks each Sunday that I think may be in play for the coming week.  Normally a few will drop off the list and few might come on over the course of the week, but once again, the goal is to figure out which stocks don’t need to be on that list so that you are left with only the best candidates to trade.

I know traders who can trade almost any type of stock and have watchlists that number in the thousands, but these are people who have been in the markets for years.  Their methods for building and using watchlists have evolved with time and experience, and even then, they are the exceptions to the rule.

If you are new to trading, or having a hard time keeping an eye on everything in your watchlist, think about limiting it with some simple criteria that makes your job as a trader simpler, easier, and more profitable.  Let someone else find the next “Drunken Goat,”  because most of the time a good “ham on rye” will do the job just fine.

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17 Responses

  1. I love this post. I have a regular job, so my former stable of watched stocks was about 15-20. I’ve found I’m doing so much better just watching 2 (up to 3) very carefully than trying to know something about those former 15-20 stocks. I’ve found that it’s much easier to follow those 2 or 3 stocks up and down with puts and conservative calls, and then buy and hold much more conservative etfs for the rest of the portfolio. The distressing thing (to my former self) is that this reality would seem to comfirm that sentiment really is basically on par with fundamentals (in the short term, anyways).

    • Yeah, the hardest thing to do in trading is to do “nothing.” But sometimes that is the best thing to do. Taking the time and having the patience to find and ride winners

  2. Pingback: Wednesday links: why the why - Abnormal Returns | Abnormal Returns

  3. Thank you for another great post!

    What do you think about the information overload on Stocktwits or Twitter? For me it sometimes makes focusing on a smaller set of stocks really difficult, because I start see more and more interesting trade setups throughout the week…

  4. Awesome post as always. You should launch a book with a compilation of your posts man. Seriously. Only a few can write first class education material with a twist of intelligent humor like you do. Greetings from an European devoted follower. All the best.

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