Using Stock Screeners
Stock screeners are very useful tools designed to help traders and investors find potential trades and investments. Screeners let you search through all stocks, specifying criteria to reduce the number of results.
A stock screener lets you input data and select the type of stocks they are looking for. The screener then scans all stocks, looking for any stocks that match your screening criteria.
For example, you can screen for all stocks whose price is between 20.00 and 25.00 per share. Then you can add an additional screener criteria: of those stocks between 20.00 and 25.00 price per share, find stocks whose market cap is between $1 billion and $5 billion. And then we can refine this list even further by screening for stocks with a certain Price-to-Earnings (P/E) ratio.
There are many different criteria you can choose when you use a stock market screener. Determining which criteria you use to screen will take a lot of research and experimentation.
We use screeners to find stocks that meet the criteria we like, while weeding out stocks that do not meet our specific criteria. The resulting stocks a screener gives you is called a Watch List. Having a nice, short watch list makes it much easier for traders and investors to perform thorough research and analysis, without wasting time on stocks that don’t fit our trading and investing criteria.
Stock Screener Criteria to Consider
Determining your stock screening criteria is the most difficult part of using stock screeners. Every trader and investor has their own method of research and analysis when they look for potential stocks to buy.
When I use a stock screener, I use a few basic criteria to find stocks I particularly like to trade or invest in.
I search for stocks between certain price ranges. For example, if I am looking for a short term trade, I will search for stocks between 10.00 and 20.00. For longer term investing, I like stocks with higher prices, so my investing price range may be between 60.00 and 200.00.
Another basic criteria I look at is average volume. I screen for stocks with a minimum 3 month daily average volume of over 100,000. High volume means higher liquidity – there are many people actively buying and selling shares. High liquidity means you will have a higher chance of being able to sell the stock when you want to sell it. Lower liquidity and volume may indicate you will have a harder time trying to sell your shares when you finally decide to exit your trade.
For longer term investing I look at fundamental data. I will screen for dividend yields if I need a dividend play. I will also look at the Price-to-Book Ratio (P/B). I also look for two accounting ratios I like: the quick ratio and the current ratio.
There are two easy ways to learn more about the criteria and options available in stock screeners. The first way is to research what each criteria means. When you see “Price/Earnings Ratio” and you don’t know what it means or how it is useful, simply hop on Google, Yahoo! or your favorite search engine, and search for the term. The second way is to experiment with different stock screeners. Play around with them. After you screen, slightly change the criteria you just used and run your screen again. You will get different results.
Making Sense of Stock Screener Results
Stock screeners can be a very useful tool. However, the real benefit comes after you gain more experience using stock screeners and understand the criteria and options you can use in your searches.
Screeners can give poor results. Because of this fact, you will need to do your Due Diligence and thoroughly research each result the screener gives you.
Do not buy and sell based on screener results. Use the screener results as a starting point and perform further research and analysis on the results.
Free Stock Market Screeners
Here is a short, but growing list of free online stock market screener tools.
- Yahoo! Finance Stock Screener – Yahoo! Finance provides 2 different screeners you can use: a basic HTML version and a much more powerful java based application screener. Yahoo! Finance seems to provide the most criteria available for those traders and investors who want to create complex stock screens.
- Yahoo! Finance Preset Screens – Yahoo! Finance also has a list of preset screens which are ready for you to execute. Good for people new to screening. Preset screens are also good for people who are not sure what criteria they want to search for.
- MSN MoneyCentral Stock Screen – MSN Money has a basic web based stock search.
- MSN Money Power Searches – Power Searches are pre-defined stock screens which can help you if you are not very familiar with screeners and are not sure what criteria you should search for. MSN Money Power Search has a number of predefined stock searches and includes both Technical Screens and Fundamental Screens.
Trading Strategy Articles
- Trading Strategy: Creating a Stock Trading Plan – Develop a stock trading plan of action to guide your trading and investing. A stock trading plan is similar to a business plan.
- Trading Strategy: Using Trailing Stops – Reduce risk and lock in profits by using trailing stop loss orders.
- Stock Market School