What Is a Watchlist?

A watchlist is a set of securities that an investor monitors for potential trading or investing opportunities.

Many brokerage and financial platforms allow for easy construction and viewing of watchlists. A well-organized watchlist can help identify trading opportunities, track portfolio performance, or monitor hot or popular stocks.

Understanding Watchlists

A watchlist is basically what it sounds like—a list of stocks that an investor watches with an eye toward taking advantage of prices if they fall enough to create an interesting undervalued situation. This takes the "closely followed" list a step further. These are names that an investor would be prepared to buy and own at the right price or with the right catalyst (a sign that growth has reignited, for instance). An investor or trader may create a watchlist of several, dozens, or even hundreds of trading instruments to make more informed investment decisions. A watchlist can help an investor track companies and stay abreast of financial or other news that could impact these instruments.

Typically, the investor monitors the list, waiting for certain criteria to be met, such as trading, over a certain volume, breaking out of a 52-week range, or moving above its 200-day moving average, before placing trade orders.

Types of Watchlists

Most trading platforms allow users to create their own watchlists for the securities that they are interested in. Fidelity, one of the leading online trading platforms, allows users to create up to fifteen different watchlists, with 50 symbols each. Users can also configure their lists to alert them of any new trading signals, such as sudden price changes. A well-organized investor could use this functionality to create separate watchlists for stocks, bonds, mutual funds, or any other tradable assets.

Watchlists are also used in cryptocurrency trading, where sharp price swings can sometimes offer brief opportunities for high profits. In addition to trading metrics, a watchlist for cryptocurrencies might track tokens with an upcoming fork or mainnet launch.

When to Use a Watchlist

An investor, for example, may be interested in purchasing stocks in a particular sector. But if that sector is generally overvalued, it may offer few stocks that are attractively priced.

An investor could create a list of all the stocks in that sector that would track various valuation measures, including ratios like trailing price-to-earnings, price-to-sales, and price-to-book, among others. When a company on the list met a specified valuation criterion, such as a PE ratio less than 15, it would then be known that this stock was a possible candidate for investment. Many investment-oriented websites and brokerage platforms allow visitors or customers to create watchlists online, often for free.

If you're interested in keeping track of any securities, you can build your own watchlist on most brokerage platforms.

Special Considerations

As a general rule, the watchlists provided by brokerage platforms can accommodate around 25 to 75 names depending on space taken up by charts, scanners, news tickers, and market depth windows. A longer watchlist of, say, 200 stocks is likely to be too broad for almost any investor to monitor or maintain. Investors should refresh this list at least a couple of times per month. After all, this is generally supposed to be a list of names that an investor is simply waiting to get cheap enough to buy.

It’s a good idea to devote at least one screen entirely to watchlist tickers, with each entry displaying just two or three fields, including last price, net change, and percentage change. Some traders add a single chart to this linking the tickers to allow a quick review of price patterns during the trading day.

Example of a Watchlist

For examples of stock watchlists, Yahoo! Finance offers several curated watchlists with preset criteria like "Most Active Penny Stocks" and "Most Shorted Stocks." These lists have the added advantage of automatic updates so that users do not need to manually add or remove stocks that no longer fit the list criteria.

The Bottom Line

Watchlists are an easy way for investors to track the market for trading signals and opportunities. There are now many tools for investors to create their own watchlists, or follow curated watchlists by other parties. By narrowing the market down to a list of key securities, traders can focus their attention to closely watch the securities that they are interested in.