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Here’s How To Create A Stock Universe To Trade

One thing I have learned over the years is that I will generally trade the same stocks over and over as a trader. Basically, I have created a stock universe for myself and will keep those stocks on my watch-list. These days I follow about 500 stocks on my quote board. Generally, I will scan these these 500 stocks every night looking for patterns, support / resistance levels and other charting factors for taking a trade.

Early in my trading career I traded everything and anything, but this was not a smart move. I would make money in a trade and lose money in another. I was inconsistent and this is something that a trader cannot afford. Once I started to create a stock universe for myself the results improved dramatically. First, I started to pick stocks that traded at least 1,000,000 shares a day or more for swing trades. By doing this I know that the stock has some big institutional money behind it and that is important. When a stock has institutional sponsorship it will usually be defended at major support / resistance levels.

Next, I realized that the more I traded the same equity the more familiar I became with the stock. In other words, the market makers trading this equity would do the same things over and over. Remember, it is the institutional market makers that move stocks not the people at home trading 100 shares of a company. Market makers are people too and will trade the same patterns and setups over and over. Once you catch on to this you know that habits and patterns that seem to repeat in a stock. This is why we even see seasonal trends in so many stocks and equities.

When first picking a stock universe it is important to start with just a handful of companies to study. I always tell new traders to use some stocks from the Dow Jones Industrial Average at first and then expand your stock universe from there. If you are really a beginner in this business you should paper trade at first. This will allow you to test your chart knowledge without any real risk. Later down the road when you go live start with small share size. By using small share size you will have less stress and pressure on you and this will keep you steady and level headed. If you trade to heavy or too many shares as a new trader you will feel stressed out, nervous, and not be able to see changes in the chart when they occur. Once you grow in knowledge and experience you can customize all of these things to fit your personality, but this is a good way to start.