Having formulated a trading strategy that includes a specific set of patterns and setups, a trader can then incorporate those items into a program that contains a list of stocks for additional scrutiny. This program is called a watchlist.
Building a productive watchlist is a three-step process. First, the trader needs to add companies to the list that either lead or lag their respective market sectors to serve as general baselines. Second, using his/her trading strategy as a guide, the trader then needs to scan the market for companies that match that strategy and then add them to the watchlist. Third, the trader needs to rescan both the market and the list each day thereafter at consistent intervals to add or remove companies from the watchlist.
While each trader can develop watchlists based on his/her preferences, it is usually recommended that you create a separate watchlist for each strategy to eliminate confusion and reduce the chance of making a trading error. In addition, it is also a good idea to build watchlists even for sectors or strategies that you are not currently pursuing so that you can be alerted when an opportunity arises.