I'm Matthew Galgani with your IBD 2-minute tip.
Five steps to building and maintaining an actionable watch list.
To increase your chances of success and your profits, you want to buy a stock
just as it's breaking past an ideal buy point on heavy volume.
For example, you could have bought Priceline in February 2012
when it broke out at this cup with handle pattern, then shot up 41% in just two months.
But how could you have spotted Priceline before it broke out?
What steps could you have taken to make sure you were ready to act when it launched that move?
It all starts with having a watch list and a game plan ahead of time.
Here are five steps that will help make sure you're ready to catch the next round of big winners.
Step 1: Make two watch lists.
Call one "Near Buy Point" - that's for stocks near a potential buy point right now.
Call the other "Radar Screen" - it's for stocks that have the solid earnings and other traits you look for
but are not near a buy point at this time.
You want them on your radar screen so you'll be ready if they do offer a buying opportunity down the road
Step 2: Limit the number of stocks you put on each list.
Remember: your watch list must be actionable.
If you have too many stocks on there, you won't be able to watch them closely and act at the right time
So, what's the maximum number you should have on each list?
That depends on how much time you have to spend doing research.
The more time you have, the more stocks you can track.
If you only have a few minutes each day and some more time on the weekend,
you might keep 5 to 10 stocks on the Near Buy Point list, and 10 to 15 on the Radar Screen list.
You should be selective.
Focus on stocks that are true market and industry leaders,
and have superior sales and earnings growth, a strong return on equity, and other CAN SLIM® traits.
Step 3: Use IBD screens and articles to find stocks to add to your watch list.
Use these as a starting point.
"Market Pulse" inside "The Big Picture" - see which leading stocks were up in volume that day
"Stock Spotlight" - check the column on the left to see which stocks are being highlighted.
It will often alert you to any potential buy points.
"Sector Leaders" - a stock has to pass a tough screening process to make this list,
so make sure you get to know each of these companies.
Also be sure to regularly check the research table review column;
that updates you on the latest action by the sector leaders.
"New High List Analysis" - stocks tend to launch big runs as they hit or near a new high.
This column gives you insight into stocks that hit a new high that day.
The IBD 50 and "Your Weekly Review" - pay special attention to
the one line analysis you'll find at the bottom of each chart.
It will alert you to any stocks near a potential buy point,
which can help you add stocks to your Near Buy Point List.
Step 4: Make a specific game plan for stocks on your Near Buy Point List.
Do that by answering these questions:
What is the potential buy point?
Is the overall market in a confirmed uptrend?
This is key because you want to avoid making new buys in a market correction, even if the stock does break out.
And finally, how many shares will you buy if the stock breaks out on heavy volume?
Answer these questions ahead of time so you'll be ready to take action without hesitation.
Step 5: Regularly update your watch list.
Make it part of your weekend routine if the stock in your Near Buy Point List breaks out or breaks down.
In other words, if it's no longer near a buy point right now, take it off the list.
If you don't regularly weed out your list, it can quickly become a junk drawer
instead of the lean, actionable watch list you need it to be.
And if you reached the maximum number of stocks you've decided to have on your list,
take off the weakest stock before you add a new and better one.
Let's go back to the Priceline example to see your watch list in action.
On February 13, 2012, it broke out from this cup with handle pattern.
The weekend before that break out, it was featured in the IBD 50,
and the chart analysis noted the specific buy point of $549.10.
So you could have had it on your Near Buy Point List,
and made your game plan before it broke out the next week and quickly shot up 41%.
In a good market, you'll find many opportunities like that
if you maintain an actionable watch list using these 5 steps.
For more on how to build a watch list and spot potential buy points, check out our free online investing courses.
You'll find them under the "Education" tab on investors.com.
That's your IBD 2-minute tip. Thanks for watching!