One of the most common questions we get from traders is how can they build a focus list that captures the best ideas in the Market?
Today’s article will provide you with a clear process to do exactly that and at the end even throw in a bonus checklist full of important reminders.
Here are the major steps we will cover:
1. Build your Stock Universe (300 – 600 Stocks)
-Wide Net Screens
-Specialist Screens
2. Curate your Weekly Wide List ( 50-100 Stocks)
-Leadership
-Strong Trends/Moves
-Developing Ideas
3. Narrowing it down to your Weekly Focus List (5 – 20 Stocks)
-Judging Quality
-Judging Readiness
4. Bonus Tips and Checklist
Build your Stock Universe
Your stock universe is a subset of all stocks in the market that meet the bare minimum requirements for a trade or investment.
This will be your starting point for your wide list.
As you go through these ideas there are two main objectives to keep in mind.
Objective 1: Track Rotation and Build Situational Awareness about Market Health
Objective 2: Identify and Organize promising Trade Ideas
As we go through the process we will touch on how to complete both of these objectives
Casting a Wide Net
The first aspect of building a stock universe is to cast a wide net with more general screens. These screens should incorporate the minimums in terms of technical characteristics and fundamentals that you would consider.
For General screens here are the key things to consider:
- Basic Requirements for Relative Strength Scores
- Minimum Liquidity Requirements (Average Dollar Volume, Volume, Price)
- Basic Requirements for fundamentals (EPS Growth YoY…)
- Trends above Key Moving Averages
A great place to start here is the Deepvue Universe Screen. This is a preset screen that looks for basic requirements in terms of Relative Strength, Group Strength, and Trend. It typically returns 300-400 high quality names.
This is a preset that is just a few clicks away.
Previous Watchlists
In addition to fresh screens, you may wish to review the previous week’s watchlist to make sure you account for any ideas which are still promising.
We also encourage you to curate a “Leaders” watchlist to ensure you are not missing any setups in the top tier names.
Streamlining the Process
At the end of the day your “Universe” should be designed and large enough to funnel in the overwhelming majority of ideas that meet your criteria. It should also fit your timeframe and schedule so that you can consistently review and update it.
If you are able to go through 500 names on a weekend (1 Hour – 1.5 Hours) then tailor your process to that. If you have less time then tighten up the base criteria to suit your needs.
The important thing is to curate this list regularly to stay informed and in tune with the market.
To speed up the process in Deepvue we’ve created the “Universe Watchlist” which automatically combines your watchlists into one.
This allows you to take all your general screens and specialist screens and review them all at once. This is super handy and removes the possibility of needing to review the same chart multiple times.
You can also use the multi-chart view to rapidly scan through many charts at a time.
Building your Wide List
Now that you have your universe set, the next step is to build your wide list. This list includes the most promising charts in the market from your universe list and includes 3 main groups:
- Leadership (Stocks you consider A++)
- Strong Movers (Stocks that have made strong moves and are setting up)
- Actionable Ideas ( Top Tier ideas that are potentially actionable in a few days)
As you go through each name in your universe, if they belong to any one of these groups, add them to your wide list for the week.
When analyzing your universe list, it may be helpful to review multiple time frames at once such as the setup pictured below in Deepvue which has both a weekly chart and daily chart together.
The fundamentals are also easily accessible through the Stats table and Data Panel & Columns.
You may also find it helpful to sort by RS Score 1 Month or by the industry group to organize your list.
Leadership
These are stocks that are in the top .1% for your style of trading. This can be based on a fundamental and technical basis.
There should be representation here from the leading groups and themes of the moment. Even if they are not set up and are either basing or trending, you should keep them on your wide list.
This is because they should be the first choice for any buys if they present a low risk entry point.
Strong Movers
Another group of stocks that you should add to your wide list are stocks showing extreme strength and power through price and volume action.
This can include extremely strong breakouts, Gap ups on earnings, or powerful trends.
Even if these names may be short term extended, they could develop over the next few days and weeks and present good opportunities.
Actionable ideas
Finally, any stocks that meet your base criteria and are setting up in mature patterns can be added to your watchlist. They should be reasonably ready within a few days to break out or otherwise complete one of your setups.
Don’t skimp on quality here. If a stock is lacking in fundamentals or has flaws in the pattern and you would not realistically act on it, don’t add it to your wide list.
Keep an eye out for themes within stocks that are setting up. If you notice a trend such as many stocks in one group getting ready to break out together, that is a clue about where rotation may be headed.
Analyzing your Wide list for themes and Situational Awareness
Your final wide list should be between 50-100 high quality names. You should be able to review it completely in under 30 minutes.
If you have many more names than this, you might have to be more selective in your criteria.
After you have your list set, again review it for common themes.
- What groups have been leading and are trending?
- What groups of established trends may be weakening?
- What groups are setting up now?
This tells you where the puck is moving in terms of rotation.
As you consistently build universe lists you will also start to notice fluctuations in the total number of setups and stocks each week.
This is another element of market health to take note of.
Creating your Final Focus List
Now that we have completed the intermediate step of building the wide list. Let’s reflect quickly on our two objectives and what we have accomplished so far
Objective 1: Track Rotation and Build Situational Awareness about Market Health
Objective 2: Identify and Organize promising Trade Ideas
With our wide list set, we can safely say we have completed objective one and made solid progress on Objective 2.
We have narrowed our focus from 10,000+ stocks that are trading to less than 100.
Now’s let’s take the final steps and identify the very top ideas in the market.
Cutting Stocks
Just like with sports teams during pre-season, we need to take our larger pool of top candidates and build our championship quality team.
To finalize our roster there are two main aspects of each stock to consider:
Judging Quality
Judging Readiness
This is extremely important so let’s spend time on each one.
Judging Quality
Quality is subjective, there’s no way around that. It depends on each individual trader’s tastes and style. However there are common threads to consider for each idea.
- Do you consider the stock to be a leader?
- Realistically how likely is the stock to double from this point if the market is in an uptrend?
- How strong is the stock’s Relative Strength Score?
- Is the stock liquid enough for institutions to help drive a move?
- Does the stock have high short interest?
- Does the stock move tightly and has it shown the ability to trend?
- How are the stock’s fundamentals? EPS Growth, Sales Growth, Estimates?
- Is it part of a developing/leading group or theme?
Your own list may look different to this but this is a solid list of focusing questions to start with.
Judging Readiness
Like quality, “readiness” is also subjective as every trader has different setups and entry tactics.
For growth/momentum traders, here are some additional focusing questions:
- Is there an entry tactic that you could realistically use in the next few days?
- Is the stock close to completing a larger pattern?
- How tight is recent price action?
- Are there any catalysts coming in the next few days?
- How constructive is recent price and volume action?
- Is the stock close to a pivot point?
Consider all these facets of each idea and go through your wide list and select the highest quality, most actionable names for your focus list.
You may need to complete a few rounds of cuts to arrive at your final weekly focus list. Remember that it’s easier to trade and execute better on a smaller subset of stocks than many.
Your final list should be between 5-20 names. The lower the better.
Picking your Daily Focus List
This will be a topic for a full future newsletter, but let’s quickly run through the high level steps of how to create a strong daily list of stocks to potentially execute upon.
You should follow the same process as your larger routine but start with your wide list and focus list as well as any specialist daily screens you may run.
Daily, go through these names, focusing first on your weekly focus list and leadership list. Identify the highest quality names that are likely actionable the very next day.
You should have a plan and an entry tactic ready to go with a likely stop loss, position size, and buy point in mind.
Be extremely selective with this daily focus list. Likely it should be below 5 names. You will execute so much better by focusing on just these few names than trying to scramble and find ideas on the fly at 9:30 the next day.
We will dive deeper into this process in the next few weeks.
Putting it all together
We’ve accomplished quite a bit today. You have learned how to fulfill the two main objectives we set forward and how to arrive at a final focus list of the highest quality.
You should complete this process at least each week to keep your lists fresh and full of the top ideas of current markets.
What we’ve discussed is a framework that you can repeatedly use. However, it’s important that you tweak and modify it to suit your needs. Every trader is different and that uniqueness is what sets us apart.
We hope that the common principles and steps have helped clarify your process and helped you advance on your trading journey.
