Deciding on good stocks to invest in is never straightforward. Countless companies are listed on the stock exchange, with large volumes of relevant information about them, choosing whether to invest or not is not making it easier.
It is difficult to sift through the valuable and helpful information from all the useless data. Fortunately, a tool such as a stock screener can help you concentrate on those stocks that match your requirements and compliment your investment strategy and portfolio.
Think of a stock screener as a highly efficient and effective filter when you need to see a list of companies you are contemplating investing with. Due to the number of stocks actually listed, it is not a feasible task to manually monitor and track the whole suite of them manually. A trade ideas screener will refine, reduce, and produce a finite number that you can then personally scrutinize further.
With access to a stock screener that accommodates your needs, it is possible to invest so much faster, which then maximizes the probability that you can become profitable sooner than later.
Stock screening technology is the key to success. The most reliable stock screener will be the one that will offer the screening functionality that matches your investment intentions. Day trading is separate from swing (or medium-term) trading and investing. Therefore, a particular investment style will have specific screening requirements.
How Do Stock Screeners Actually Work?
Stock screeners are popular with day traders – as they can identify stocks that are moving in a promising and profitable direction – and promptly as well (almost in real-time).
A stock screener must have (at least) the following three components:
- A current database of the available companies that can be invested in.
- A set of variables that will perform the filtering or screening capability.
- A screening program that uses the filtering variables, and then generates a list of companies that meet the screening requirements as output.
Utilizing a stock screener is quite straightforward. One of the initial tasks an investor will need to do is to identify and utilize the screening variables that will assist the screening program with the filtering process. A suite of investment questions should be answered beforehand, and they may include topics like the following:
- Do you prefer small-cap or large-cap stocks?
- Is your preference for stock prices that have recently fallen in price?
- Are you looking for stocks in companies within a specific sector, or industry?
These questions are merely a sample or subset of the screening variables that can be utilized based on an investment strategy.
A good screener will allow an investor to search using just about any metric or criteria they desire. After finishing inputting your answers, you will receive a list of stocks that meet your investment requirements.
You Need to Know What to Screen For
The significant challenge using screeners is understanding the criteria that will be used for its searching program. There are hundreds of variables that will make the possibilities for diverse combinations appear endless. Some screeners will list the most common predefined stock screening options to assist and encourage investors, with their variables already entered.
Watch Out for these Possible Stock Screening Limitations
Granted, stock screening tools are quite useful, however they do have limitations.
Screeners do not have pertinent information about a company, such as labor dilemmas, any pending lawsuits, or low customer experience levels.
Screeners handle databases that are updated, but when and how? It is prudent to check the timeliness and relevance of the stock data.
Be mindful of industry-specific lack of information. For example, most startup high-tech companies will not display within screening results because they will have large capital already invested, but without any tangible outputs for consumers to potentially purchase just yet.
Do Your Homework First
As previously stated, stock screeners will not be aware of relevant recent news that has affected (or will affect) individual companies. Therefore, it is ideal to use stock screening data results as a single starting point and commence further research from there.
Follow up on those companies that have piqued your interest by reading the current financial and legal news – you might be surprised to read up on issues affecting the companies that you have chosen as prospects to invest in. Always search for news that may pose a risk to a company’s bottom line.
If you are not sure which screening tool to use, take your time and download sample programs, and test the tools until you find the ideal one that will suit your investment style.
It is important to understand that stock screeners are not a magic wand that will identify stocks that will earn you loads of money instantly. There is no simple alternative to research and analysis. Stock screeners can present a starting point to commence the research process, as they will save investors valuable time narrowing the complete set of potential stock options down to a manageable collection.