If you want to make money in the stock market, then it is critical that you create a list of good stocks to watch. Here is how you should do this to make certain that you do not miss any potential market movers.

Creating a watch list is a one of the most important things that an investor should do, especially a beginner investor or person that is just starting out. Tracking stocks is known as paper trading and it is a way that an investor can create a watch list of companies that they are not quite ready to purchase and follow them over time. By creating a watch list you can see if your initial instincts about a particular company's stock were correct. And, you do not have to risk your capital which is particularly important if you haven't developed your skills as an investor.

How to find good stocks to watch

The first thing that you need to be aware of is your investment objective. How long do you intend to hold your positions? Are you making an investment for the medium term, long term or very long term. It is generally not a good idea to make investments based on short term market predictions, at least not until you have developed your stock market trading skills. However, a medium term time horizon of six to twelve months is a recommended approach for beginner investors.

So, let's assume that you are moderately bullish on the market over this term, that is to say that you think that it is likely that the price of stocks will rise. How do single out interesting stocks to watch? The best way to do this is to focus on sectors of the stock market that you think are likely to outperform the broader market over the given period. First, you identify the broad sector, then you narrow in on a leader in that sector that you expect to produce market-beating results.

Let's look at an example. Imagine that you believe that the economy is rebounding and that entertainment spending will increase. You would likely look at the broad entertainment sector. You can do this at a finance portal such as Yahoo Finance. Within the sector you would then want to look for individual securities that have outperformed the sector over the previous three months. In this example, a quick check would reveal that IMAX Corporation has been a top performer in the entertainment field. At this point, you would want to develop a thesis about whether you think a company, in this case IMAX, can continue to outperform relative to the sector. This requires you to do a little bit of fundamental analysis on the stock. Ask yourself some questions: What is driving this company's growth? What is the outlook in the medium term (and long term) for this company? Who are the company's chief competitors? What is the company's growth rate? Etc, etc.

In this case, you will find that the company possesses excellent fundamentals and you can create the thesis that it should continue to outperform the sector at large. Therefore this is a company that should be marked as an excellent stock to watch. So let's recap:

To find good stocks to watch

First, you identify a sector of the stock market (and economy) that you think will perform well over the coming six to twelve months. Then you look within that sector for a single stock that has been outperforming relative to that sector as a whole over the previous six to twelve months. Then you need to evaluate whether you believe that stock is positioned to continue to outperform going forward. If the facts indicate that the story is sound, then you add that company to your watch list and consider buying on any pull backs.

The important thing to realize is that you do not to hit it out of the park every time. If you are able to locate five to ten companies in sectors that you believe are well positioned for growth then you will likely have the makings of a very interesting watch list. The next step comes in deciding when and what to actually buy. Buying stocks takes a different discipline than creating a watch list does, but if your watch list is able to perform well on paper, then you know that your methodology is sound.

Now, it is critical that you realize that there are many variables that go into choosing stocks to invest in. There are, in fact, many more variables than one can possibly write about in a single article. And remember that there are people who spend their entire professional lives honing their investment skills and getting better at picking stocks. So, do not expect that you will be able to master this discipline in a very short time.

The most important thing is that you continue to develop your skills and instincts at identifying good investment opportunities. The good news is that there are literally hundreds of websites which are focused on developing your skill as an investor. It is important that you read and study as much as possible before you actually risk your money. But, with this basic understanding, you will be able to indentify good stocks to watch and potentially invest in.