Today's Quote: “Laws are never as effective as habits." Adlai Stevenson.

Yesterday we finished discussing the second of the five weapons we use throughout the day which was the gap list. Today we move on to number three which is a relatively simple concept of a “favorites” list.

A favorites list may be a list that is a subset of the trader’s total universe of stocks and is typically used for a specific purpose. It may also be a small list that actually is the traders’ total universe. Let's take a look at the first scenario where traders may use a favorites list to be a select group from their bigger lists called their "total universe". The idea of having a small list is to have a group of stocks that you are more familiar with.

Typically these are going to be the higher volume stocks. This list may be the list that is used for the smaller time frames, such as scalping, where higher share size and higher total volume requirements in the stock are needed. The main advantages of using this favorites list are as follows. First of course, the fact that they are usually going to be higher volume stocks and you know you can play them at any time. Second you will get to know these stocks intimately. You are able to view all the time frames every day and know precisely how they act to get a feel for how they move throughout the day.

Some traders actually only keep a very small handful of stocks in front of them and use this as there total universe. This is not the thing to do if you are a longer term trader and are looking for swing trades and core trades. To trade those time frames you need to know a wide variety of stocks because setups do not occur that often. However for intraday plays using 60, 15, 5, and 2 minute charts, the set ups come much more frequently and traders can benefit by getting to know a small handful of stocks and referring to them constantly throughout the day. This form of discipline and greater knowledge of the issues being traded can be very beneficial to a trader.

Tomorrow we will began a two-day discussion of weapon number four; the sector lists.