Tag: Guide

Trading Strategy: Using Stock Screeners to Find Potential Buys

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

Choosing An Online Stock Broker

Introduction

Choosing an online stock broker can be difficult and overwhelming at times. People new to stock trading and investing have many choices and options to consider. Finding the right online broker to meet your needs or requirements can be very rewarding and beneficial, for your portfolio and your peace of mind.

Here are some basic things you will need to consider when you look at difference online brokers. If you are not sure what these options and features are, you can speak to a representative of an online broker firm, or you can leave a comment and we’ll do our best to answer your questions.

Commissions

All brokers charge commissions fees. Commissions fees are the cost to buy and sell stocks. You are charged a commission fee twice: once when you buy a stock, and again when you sell that stock.

I believe all brokers charge higher commissions when you phone in orders and speak to a human being. Keep this in mind as these commissions are for orders placed online only.

  • Scottrade: $7 per trade
  • TD Ameritrade: $9.99 per trade
  • Interactive Brokers: varies, minimum $2
  • E*Trade: $19.99 per trade

Minimum Initial Deposit

The minimum initial deposit for online stock brokers ranges from $500 to over $10,000. For those with less initial trading capital, lower minimum deposits are generally the deciding factor.

If your account balance is less than this minimum, your broker may charge you a fee every month or every quarter. These fees usuall range between $10 to $20 per month or per quarter, but can be higher. Read the fine print if you plan on depositing the absolute minimum capital in to your account.

  • Scottrade: $500 minimum deposit
  • TD Ameritrade: $2000 minimum deposit
  • Interactive Brokers: $2000 minimum deposit
  • E*Trade: $1000 minimum deposit

Features

All online brokers have a set of features and tools included with your online trading account. The default set of tools include streaming charts and streaming data, which is usually in the form of an application called a streamer. Your streamer allows you to see the latest real time prices of stocks in your watch list or portfolio. Some streamers simplify the process to buy and sell stocks so you will not have to load up a separate web page to place your orders.

Most brokers also have additional features which are not included in the basic trading account. These additional features have additional costs. Level 2 data and real time streaming news generally fall in to this category and have additional monthly fees.

Popular features offered by online brokers include:

  • Streaming Charts
  • Streaming Data
  • Analysis Tools
  • Streaming Real Time News (may cost additional fee)
  • Level 2 Data (may cost additional fee)

Local Offices

Some online brokers have local branch offices some U.S. cities. Some traders and investors may want to sit down and talk to their local broker representatives. In this case, choosing an online broker with a branch office close to your home may be the deciding factor for you.

Scottrade has very many branch offices all across the US. TD Ameritrade also has branch offices in some cities and the number appears to be growing. I do not believe E*Trade has any branch offices.

My broker, TD Ameritrade, has an office in my city, but I have never visited them. A local branch office was not a deciding factor in my choice of an online broker.

Popular Online Stock Brokers

Here are the most popular and respected online stock brokers. This list may be incomplete or your favorite broker may not be included. These are the brokers I am either personally familiar with or have heard good things about from my trading and investing friends.

Rate Your Stock Broker

You can now rate your stock broker at the Trading Winner Stock Brokers page. Rate your broker and tell us what you think about them.

Using Stop Loss Orders to Reduce Risk

Using Stop Loss Orders to Reduce Risk

First we need to cover 3 major questions about stop loss orders:

  • What is a stop-loss order?
  • Why should a stock market trader use stop loss orders?
  • How do I place a stop loss order?

What is a stop loss order?

A stop loss order is an order that you place through your broker that tells your broker to sell your shares if the stock price hits a specified price. When the stock price hits your stop loss price, the order will execute and your shares will be sold.

Why should I use stop loss orders?

Stop loss orders are used to reduce the risk you are taking on when you buy stocks. Stop loss orders will automatically execute when the stock price hits the lowest price you want to sell at. Generally, most traders will use a stop loss of 1-2% of their entire portfolio value. So that if the stock trade is bad, they’ll only lose 1-2% of their portfolio, which on a good day, a skilled trader can make this loss back plus more.

How do I place a stop loss order?

Placing a stop loss order will vary from broker to broker. Most online brokers have this order type in their normal order entry page. You may need to contact your broker for instructions on how to place stop loss orders using their system. With Ameritrade, it’s pretty simple. Stop Loss is one of the order types to select from.

An example of how a stop loss works.

You have $10,000 dollars in your entire portfolio. You buy 100 shares of XYZ stock at 10.00 per share. First, you need to calculate the greatest amount of money you’re willing to lose on this trade. The money we’re willing to lose is the amount of risk we are willing to take. Most daytraders are willing to risk 1-2% of their entire portfolio value. We will use 1% of our entire portfolio value in this example. The math is: (entire portfolio value) * (percentage of entire portfolio value we are willing to risk or lose). For our example, this will be $10,000 (total value) * .01 (.01 is the numerical representation of 1% – which is how much we will risk). $10,000 * .01 = $100. We are willing to lose or risk $100 on this trade.

Now we need to calculate the share price we want to set our stop loss at. You take the current value of your XYZ holdings, which is $1000 (100 shares times $10 per share). Subtract the maximum amount you are willing to lose from our XYZ value: $1000 – $100 = $900. This $900 is the amount of money we will have if our stop loss order executes. Now, take $900 and divide it by the total number of shares to get our price to set the stop loss at: $900 / 100 = $9. So, $9 is our stop loss price. This is the price you will sell XYZ at due to risk management of 1% of total portfolio value. If and when the price of the stock falls to $9, our stop loss order will automatically execute and sell your stocks.

By using stop loss orders, we know our risk and how much money we may potentially lose in a trade. Psychologically, we are prepared to accept the loss, since we know our sell out price. Stop loss orders reduce risk by limiting potential losses in poor trades.